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Workers’ compensation insurance is a type of insurance that covers employees who are injured on the job. This type of insurance is typically provided by employers and it’s important to know what you’re covered for.
If a company owner, solopreneur, or independent contractor experiences an on-the-job accident or sickness, self-employed workers’ compensation insurance covers medical bills and missed pay. For self-employed persons, some brokers propose workers’ compensation insurance to safeguard their company if they are unable to make an income due to a workplace accident. The cost of a policy is usually about $250 per year.
Rather than foregoing workers’ compensation insurance, business owners and self-employed contractors should consider purchasing coverage that covers their company in the event that they are hurt on the job.
What Is Self-Employed Workers’ Compensation Insurance?
Workers’ compensation insurance for self-employed people is a coverage that protects company owners in the event that they are injured on the job. The coverage covers missed earnings and medical expenses incurred as a result of the accident, allowing the self-employed to keep his firm running while he recovers.
Is Self-Employed Workers’ Compensation Insurance Required?
Workers’ compensation coverage is normally required by state law for employers, but it is frequently optional for an independent contractor or self-employed individual without employees. In certain cases, collecting workers’ compensation makes sense for solopreneurs, such as:
- Working in a high-risk industry: Some persons are more likely to sustain an accident at work. Repetitive motions, chemical exposure, and physical labor are just a few examples of job scenarios that may need workers’ compensation coverage for a self-employed individual.
- Meeting state requirements: For the self-employed, coverage isn’t always a possibility. Workers’ compensation rules in California, for example, compel roofers to have insurance whether or not they have employees.
- Meeting contract obligations: Some firms will only deal with independent contractors if they have workers’ compensation insurance, which restricts the other company’s responsibility if the independent contractor is injured while working for them.
Also, keep in mind that most businesses need workers’ compensation. Even though you’re exempt, if you’re self-employed and recruit employees, you’re responsible for obtaining coverage for them.
Even if there are no employees, a company owner may be required to provide a certificate of insurance demonstrating workers’ compensation coverage. This may prompt the company owner to purchase ghost insurance, which is effectively a policy that protects business owners who have the ability to remove themselves from coverage. It’s only a good idea to have a ghost policy if the firm owner and any officers:
- Are qualified for a tax break
- During the policy period, you have no workers and no intentions to recruit any.
It should go without saying that the company owner should not pay employees under the table or pretend that they are independent contractors when they are not. Both of these actions might result in significant penalties as well as extra invoices for premiums that they should have paid.
Do Contractors Need Workers’ Compensation Insurance?
Although it’s uncommon, some jurisdictions require independent contractors and subcontractors to have workers’ compensation insurance. Independent contractors and company owners in Vermont, for example, must specify who is accountable for workers’ compensation in writing. If they don’t, the company owner will be held liable if an accident occurs, and the independent contractor will be without coverage.
Employees vs. Independent Contractors
To avoid paying workers’ compensation, some company owners recruit independent contractors rather than employees. This may work, but you must be certain that you understand the differences between the two. It’s usually a question of how much control the company has over its job. Employees are given instructions on what to do, when to do it, and, to some degree, how to do it.
Meanwhile, here are some tips for independent contractors:
- Provide services that are critical to the running of the company.
- Decide how their task will be completed.
- Participate in no training or assessments.
- They must purchase their own materials and equipment.
- Accept employment from other companies.
- Instead of hourly, weekly, or bi-monthly pay, a flat charge may be paid.
The IRS has identified a number of distinctions between independent contractors and employees. Additional tests may be available in your state to assist you in determining whether or not you need to get workers’ compensation for your employees.
It’s a poor idea to claim a person is an independent contractor when they’re really an employee. You may have to pay penalties and make up for past taxes and underpaid salaries if you misclassify personnel.
Where Can Self-Employed People Get Workers’ Compensation Insurance?
The workers’ compensation market in each state is unique. Some states compel all company owners to use a state-run fund, while others have a competitive market with private carriers. The best workers’ compensation insurers have experience in your sector and coverage tailored to solopreneurs that expand with your company.
The Hartford
The Hartford is the ideal option for self-employed people who require coverage but are worried about pricing. The firm provides a pay-as-you-go plan in which you pay a premium based on your real monthly payroll rather than a yearly projection. This option requires solopreneurs to pay a more realistic premium.
Employers
Employers are a great resource for self-employed persons who want to grow their company and recruit employees. The firm specializes in small business workers’ compensation insurance and provides a variety of services to assist new firms in developing cost-cutting safety processes. Hazard analysis and staff safety training, as well as help on establishing a return-to-work program, are all included in the programs.
State Farm Insurance
For more than 95 years, State Farm has been a leader in property and liability insurance, and it’s the best option for single artisan contractors who are worried about not having coverage via general contractors. State Farm offers competitive rates on self-employed workers’ compensation insurance for licensed plumbers, carpenters, and electricians.
CoverWallet
CoverWallet is a leading small company insurance broker that aims to make things simpler for solopreneurs by providing a quick online application that sends their information to a number of top-rated providers. It takes roughly 5 minutes to complete the application, and quotations for qualifying firms display in about a minute. This makes comparing offers and selecting the best coverage for your job a breeze.
Liberty Mutual
Liberty Mutual takes pride in its workers’ compensation claims processing, citing a five-year study that found it settles claims 18% quicker and at an 11% cheaper cost than its rivals. In addition, the firm may issue workers’ compensation insurance for self-employed individuals with minimal employees. Liberty Mutual is thus a good choice for microbusinesses in high-risk areas like manufacturing and construction.
Self-employed Workers’ Compensation Insurance Costs
Workers’ compensation payments for self-employed people are determined by your state, yearly payroll claims history and job categories. The dangers associated with your everyday work are represented by job categories. A rating agency, such as the National Council on Compensation Insurance, assigns a base rate to each categorization (NCCI).
Rates of Compensation for Self-Employed Workers by Class Code and State
The base rate is merely the start of your expenses. It must be multiplied by two more numbers:
- Your premium will be $625 if your categorization rate is $1.25 per $100 and your payroll is $50,000.
- EMR (experience modification rate): Your e-mod (experience modifier) is a number that shows your claims history. More claims increase your e-mod, which raises your premium.
The resultant rate is known as your manual rate, since it is the one quoted by insurers before fees, taxes, surcharges, and discounts are taken into consideration. In addition, even if a self-employed person has no employees, insurers often impose minimum rates for workers’ compensation. All of this, along with the fact that each carrier evaluates your claims history in its own manner, means prices may vary significantly from one insurer to the next, making comparison shopping essential for keeping workers’ compensation expenses low.
How Do Independent Contractors Use Job Classifications?
The NCCI produced job categories that look at the actual job tasks of the worker, which are used by most states. This implies that self-employed people’s job categorization is largely centered on their basic responsibilities, rather than any extra work they would undertake as a company owner, such as accounting, sales, or marketing.
Consider the case of a self-employed gardener who employs a clerk to help with scheduling, accounting, and billing. The clerk is classed as an office worker (class 8810) rather than a gardener (class 0042). As a consequence, the gardener pays for the clerk’s workers’ compensation at a lower rate than he does for his own. His premium, on the other hand, is a hybrid of the two.
How to Avoid Self-Employed Workers’ Compensation
Self-employed company owners, for the most part, do not need workers’ compensation coverage for themselves. Some states, however, require self-employed persons to submit a waiver with the workers’ compensation board to opt-out.
When independent contractors provide services to another company, they may require workers’ compensation releases as well. In places where the company owner is responsible for paying workers’ compensation for independent contractors, the business owner might occasionally request that the independent contractor forgo the obligation. This usually necessitates completing documents with the state board as well. Because each state is unique, check with your state’s governing body for information.
Frequently Asked Questions (FAQs)
If I have health insurance, do I need self-employed workers’ compensation?
Self-employed contractors often believe that their health insurance covers work-related accidents and illnesses, but this is not the case. The majority of health insurance plans do not cover work-related occurrences. Even if they had, health insurance deductibles may be as high as $12,000, which many small company owners may find prohibitive—especially if their injuries prevent them from working.
Why did I get a workers’ compensation insurance charge at the end of the year?
Premiums for workers’ compensation insurance are calculated using annual payroll forecasts. When a policy expires, insurers conduct a workers’ compensation audit to see if the premium was calculated correctly. An employer may not know the exact number of hours someone works, or they may hire or fire people in the middle of the policy term, so when the policy expires, insurers conduct a workers’ compensation audit to see if the premium was calculated correctly. You’ll receive a charge for the difference if your paycheck is more than expected. You’d get a refund if they turned out to be less than expected.
Is my general contractor responsible for workers’ compensation?
On modest projects, general contractors may cover independent contractors or ask them to provide their own workers’ compensation insurance. On bigger projects, contractors may have a contractor-controlled insurance program (CCIP) that covers workers’ compensation and general liability for anyone involved in the project.
Will I be able to claim self-employed workers’ compensation if I have pre-existing conditions?
Employers may get workers’ compensation insurance for themselves and their employees even if they have preexisting conditions. Only new injuries and illnesses, as well as flare-ups from previous labor, are covered by insurance policies.
Is workers’ compensation insurance required for a single-member LLC?
The necessity for a single-member limited liability corporation (LLC) to have a workers’ compensation policy is determined by state law, as it is with other things related to workers’ compensation. LLC members are often free from restrictions, although they may still need to inform the state of their decision. To find out what your needs are, you should contact your state’s workers’ compensation board.
Conclusion
Workers’ compensation insurance for self-employed persons is essential for sole owners and independent contractors. While insurance may not be necessary for every solopreneur, those who are at risk of suffering an accident that might result in a loss of income may benefit from it.
