Are Sole Proprietors Required to Have Workers Comp Insurance?

Thang Truong
Thang Truong
Updated on:

Workers’ compensation insurance laws can be complicated. Add to this that different states have there own laws with unique requirements. This often leaves sole proprietors wondering whether they need the coverage. In this article, we’ll reveal the workers’ comp requirements for sole proprietors for the top ten states by population in the United States, and explain some unique nuances of the laws that may make it necessary for you to get coverage in some unexpected situations.

Workers’ comp requirements for sole proprietors in California

In California, employers, even those with just a single employee, must carry workers’ comp insurance. The one exception to this rule: sole proprietors without employees can choose to not get coverage. Workers comp can be purchased in California from a commercial provider or through its state administered fund. 

Learn more at the best workers comp insurance companies in California

Workers’ comp requirements for sole proprietors in Texas

Workers’ compensation insurance is completely optional for employers, including sole proprietors, in Texas. The exception: Construction companies that do work for government entities must have coverage. Sole proprietors and other business owners can purchase workers’ comp, if they want it, from a commercial insurance provider or the state administered fund.

Learn more at the best workers comp insurance companies in Texas

Workers’ comp requirements for sole proprietors in Florida

In the state of Florida, construction businesses with one or more employees and non-construction industry employers with four or more full or part time employees must carry workers’ comp. Sub contractors must provide coverage for their workers, however primary contractors are responsible for ensuring that the sub-contractor has it. Sole proprietors in non-construction industries are not considered to be employees unless they choose to be. In Florida, sole proprietors and other business owners can purchase coverage from an insurance company.

Learn more at the best workers comp insurance companies in Florida

Workers’ comp requirements for sole proprietors in New York

Almost every employer in New York State is required to provide workers’ compensation insurance for all employees. Coverage isn’t required for sole proprietors, but the state allows them to purchase it for themselves. Small business owners, including sole proprietors, can get coverage in New York from insurance companies or through the New York’s state workers’ comp fund. 

Learn more at the best workers comp insurance in New York

Workers’ comp requirements for sole proprietors in Pennsylvania

In the nation’s fifth largest state, workers’ compensation insurance coverage is required for all employers with one or more workers, regardless of status, number of hours worked per week, or whether the employee is a spouse or child. However, in Pennsylvania, coverage for sole proprietors is optional. Business owners and sole proprietors can get protection from an insurer or the state fund.

Learn more at the best workers comp insurance in Pennsylvania

Workers’ comp requirements for sole proprietors in Illinois

In Illinois, workers’ comp is required in almost every work situation and for every employer, even those with one part time employee. If your business is in construction, trucking at a construction site, or other hazardous field, Illinois usually requires employers to obtain insurance. Sole proprietors who have no employees are exempt but can choose to purchase the coverage. Insurance in Illinois can be secured from commercial providers. 

Learn more at the best workers comp insurance in Illinois

Workers’ comp requirements for sole proprietors in Ohio

All employers with one or more employees in Ohio must carry workers’ compensation insurance. However, coverage is optional for sole proprietors. The only way to get workers’ compensation insurance in Ohio is through the state administered fund. 

Learn more at the best workers comp insurance in Ohio

Workers’ comp requirements for sole proprietors in Georgia

Employers in Georgia with three or more workers are required to carry workers’ comp. Georgia considers sole proprietors to be employers, not employees, so they’re exempt from getting coverage, but can choose to be covered as an employee by advising their insurance carrier. Businesses in Georgia, including sole proprietorships, can purchase coverage through an online insurance company or an agent.

Learn more at the best workers comp insurance in Georgia

Workers’ comp requirements for sole proprietors in North Carolina

All employers in North Carolina with three or more employees must carry workers’ compensation insurance for all of them. This includes minors and undocumented workers. Any business in which one or more employees work around radiation must have coverage, as well. Sole proprietors are exempt from having to get workers’ comp, however they have the option to get coverage from an insurance company or through an agent. 

Learn more at the best workers comp insurance in North Carolina

Workers’ comp requirements for sole proprietors in Michigan

In the tenth state on our list, all businesses with one or more employees are required to get workers’ comp coverage. In the state, a sole proprietor is not considered to be an employee, so he or she doesn’t have to get insurance. If they prefer to carry coverage, sole proprietors can secure it through an insurer or the state’s workers’ comp fund.

Learn more at the best workers comp insurance in Michigan

Situations where sole proprietors may need workers’ comp 

In most states, sole proprietors with no employees are generally not required to get workers’ compensation insurance. However, if you’re injured on the job, a sole proprietor workers’ comp policy can help pay for medical expenses and replacement wages while you recover. 

Think about it: Could you afford to pay for medical costs while not earning an income because you had an accident and experienced an injury or illness on your job?

For most sole proprietors, the answer is NO. It’s why so many invest in the coverage to protect their livelihoods.

Here are some other reasons an sole proprietor may need to get workers’ compensation protection:

  • Clients may require it. While you may be legally exempt from securing workers’ compensation insurance, it’s not against the law for a company to require a sole proprietor doing work for it to have workers’ comp, even if he or she has no employees. It helps protect it against lawsuits should you become injured or ill because of job related reasons while working for the company.
  • You hire subcontractors. Every state has its own way of determining when a subcontractor is considered to be an employee, which requires you to buy workers’ comp coverage for them. In these situations, if you’re required to have coverage and don’t, and your subcontractor gets injured or ill on the job, you could be responsible for paying medical costs and lost wages out of pocket, along with fines and penalties imposed by your state. This is often enough to put a sole proprietorship out of business and could lead to bankruptcy. It’s worth checking with your business insurer or your state’s workers’ comp agency or bureau website if you find yourself hiring a subcontractor and aren’t sure if you need coverage.

Tip: Even if you hire a subcontractor who has their own workers’ comp insurance, you may be held responsible if your state requires you to carry the coverage.

  • Non-W-2 workers can sometimes be considered employees. As a sole proprietor, by definition, you don’t have full-time W-2 employees. However, that doesn’t mean your state doesn’t view part-time or non-W-2 workers as employees. Some businesses try to get away with not purchasing workers’ comp by not giving people doing work for them a W-2. If any worker doesn’t provide the services that they do to you to the general public, they may legally be considered your employee in some states. If something happens to them while working for you, you could be responsible for losses and state penalties.

Before sole proprietors hire anyone in any capacity, they owe it to themselves to:

  • Meet with their attorney before hiring anyone to determine the actual status of the workers based on state laws.
  • Check with your business insurer or state workers’ comp agency or bureau to find out if you need to carry the coverage.

In the end, sole proprietors owe it to the future of their small business to ensure they get the workers’ compensation insurance they need to protect themselves and their livelihoods

Learn more at the best workers comp insurance companies for sole proprietors

Thang Truong
Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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