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Workers’ Comp Insurance for the Self-Employed: Everything You Need to Know

One of the benefits of being self-employed is that you have only yourself to worry about. Believe it or not, workers’ compensation insurance may still be of benefit to you, even if you don’t have any employees. Let’s take a deep dive into workers’ compensation insurance for the self-employed. 

What is workers’ compensation insurance for the self-employed?

As you know, workers’ compensation insurance covers medical expenses and lost wages if an employee suffers from an injury or illness while on the job. Even though you’re self-employed, if you work in a higher-risk industry where you may suffer an injury, workers comp insurance is a good idea. As a self-employed person, you should still get workers comp insurance to protect yourself in case you are injured or become ill at work.

Why does the self-employed need workers comp insurance?

As a self-employed person, you may or may not have health insurance. But what you may not know is that most health insurance policies exclude workplace injuries and illnesses. This would leave you with having to pay your medical bills out of pocket, which could be exorbitantly expensive. Workers comp insurance will also help cover your lost income while you recover. 

Even if you don’t have a terribly high-risk job, consider that repetitive stress injuries can happen to people who do data entry, IT, or accounting. If you work as a house cleaner, you may be exposed to harmful chemicals. When people work for a company, they expect the company to take care of them if they suffer an injury. If you work for yourself, you have only yourself to rely on. 

Say, for example, you work as a house painter. While painting a customer’s house, you fall off the ladder and break your ankle. Without workers’ compensation insurance, you would be on the hook for all of your own medical bills, plus you won’t be able to work for at least several weeks, if not more. But if you had workers’ compensation insurance, not only would your medical expenses be covered, but you’ll also receive lost wages as well. This will allow you to recover without having to worry about going bankrupt. Should you not be able to return to work as a painter, workers’ compensation will pay to train you to work in some other field. 

Is the self-employed required by state laws to have workers comp insurance?

Depending on what sort of work you do and what state you live in, workers’ compensation insurance may be required. California, for example, requires roofers to have workers’ compensation insurance even if they are self-employed. Technically, Vermont and Arizona require business owners to carry workers comp, even if they are the only employee (although you can opt out). Every state is different: you can read the state requirements here. 

Self-employed construction workers in many states are often required to have workers’ compensation insurance because many businesses won’t work with them if they don’t.

>>MORE: Best Construction Insurance Companies

What is a ghost workers comp insurance policy?

Some business owners are required to show they have workers’ compensation insurance even when they don’t have any employees. However, most workers’ compensation policies allow sole proprietors to exclude themselves. If you have workers’ compensation insurance but have excluded yourself from it, that’s called a ghost policy. This will only work if you have no employees and don’t work with independent contractors. Learn more at the best workers comp insurance for independent contractors.

>>MORE: Best Independent Contractor Insurance Companies

Are independent contractors required to have workers comp insurance coverage?

Occasionally, a business owner will try to get away without paying workers’ compensation insurance by hiring independent contractors. However, the IRS has a number of rules dictating who is and is not an independent contractor. The IRS divides them into three categories to help you decide. 

  • Behavioral control: Can the employers tell you when and where to work? Do you evaluate the worker’s performance? Is there significant training involved so that the employee can do the job? If you answered yes to these questions, you have an employee. 
  • Financial control: Was there a significant investment in the equipment the worker uses? Is the worker paid by the hour? Does the worker get expenses reimbursed? These may indicate the worker is an employee. 
  • Relationship: Is there a contract? Are benefits such as insurance, pensions, or vacation pay offered? Is the relationship likely to continue?

The IRS knows that unethical business owners may try to misclassify employees as independent contractors. If you misclassify a worker, you are subject to penalties and employment taxes. There’s a longer list about how you can tell if your worker is an employee or an independent contractor, which you can read here

How much does workers’ compensation insurance for self-employed people cost?

It varies according to:

  • Location
  • Industry
  • Annual earnings
  • Claims history
  • Job classification

The average cost of workers’ compensation insurance for the self-employed is about $20 a month. Different insurance companies will give you different quotes. Be sure to shop around with a few companies or with a digital broker like CoverWallet or PolicySweet to compare several quotes and select the best and the cheapest one for you.

>>MORE: How Much does Workers Comp Insurance Cost?

Where do I get workers’ compensation insurance for the self-employed?

This also depends on where you live. Some states require all businesses to go through a state-run fund for workers’ compensation insurance. These are called monopolistic states and they are:

  • Ohio
  • Wyoming
  • Washington
  • North Dakota

Other states offer small business owners the opportunity to purchase workers’ compensation insurance through a state fund, but it’s not required, it’s merely an option. These states are:

  • Arizona
  • California
  • Colorado
  • Louisiana
  • Maryland
  • Missouri
  • New York
  • Pennsylvania
  • Rhode Island
  • South Carolina

In every other state, you’ll have to go through a private insurer. However, unless you’re in a monopolistic state, make sure you get quotes from at least three companies (or two companies and the state fund). This could save you money on workers’ compensation insurance. Here are our recommendations for the best workers comp insurance companies for independent contractors or the self-employed

Also, make sure you classify your job correctly. There’s a list of job classification codes here

How to get the cheapest self-employed workers comp insurance?

There are a few ways to find the coverage you need at a fair price:

  • Shop around for the best value. Get quotes from a few companies and compare coverages and costs to find the best combination of the two. 
  • Don’t stop shopping around. Make sure you get new quotes when it comes time to renew your policy.
  • Safety first: Be sure to implement and follow the safety standards and best practices for your work. Document your work process and procedures and how you follow them strictly. These will help you reduce not only the cost of your self-employed workers comp insurance policy, but also the risk of being injured at work.
  • Take advantage of discounts. If they’re not offered to you when getting a quote, ask about them, whether you’re buying online or through an agent.

Taking these steps will help ensure you’re not paying too much for the self-employed workers comp insurance.

>>MORE: The Cheapest Workers Comp Insurance Companies

Last thoughts

Sole proprietors and the self-employed may think they don’t need to worry about workers’ compensation insurance. Although it’s not usually required, it can still be a good idea. 

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