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Worker Compensation Insurance For Self Employed

Last modified: Sep 29, 2022

Becoming a self-employed worker is indeed a massive achievement in itself. Nonetheless, there are things that you must consider before starting this new chapter of work life. One of them is worker compensation insurance for self employed. 

Signing up for self-employed workers’ compensation insurance can provide business owners, independent contractors, or solopreneurs a safety net that can protect them from numerous unforeseen medical bills and lost wages in the event of an illness or work-related injury. Although workers’ comp insurance is vital — and usually mandatory for most businesses — it’s often ignored by the self-employed. 

Many self-employed workers presume that acquiring such a policy is needless since they’re covered by the company they work for, but that’s usually not the case. Most employer workers’ compensation plans only encompass the firm's employees, meaning the self-employed individuals working for the firm are excluded.

So, you might have bravely taken the leap, but what backup plan do you have in case you’re injured while working? One solution is to sue the employer to receive reimbursement for your medical bills and lost wages. But remember, you will be liable for the hefty legal expenses. And even if all goes well and you win, it’ll take time to receive any payment. Thus, the best way to protect yourself from any such scenario is to get self-employed workers’ compensation. 

This guide provides all the necessary information about worker compensation insurance for self employed: from its costs to choosing the best plan for you. 

What Is Workers’ Compensation Insurance for the Self-Employed?

In a nutshell, workers compensation insurance coverage for the self-employed is a policy that business owners purchase to protect themselves in case they get injured while performing a work-related task. Also known as workman’s comp or workers’ comp, this coverage is a form of business insurance. The plan creates a safety net for those who face unforeseen medical expenses and lost wages related to the injury. It also helps the self-employed keep their business afloat while recuperating. 

Workers compensation insurance coverage may particularly be the thing for you, if: 

  • You are concerned about probable income loss due to an on-job injury.
  • You plan on expanding the business and thus, need to recruit employees. 
  • You need proof of insurance to work with certain clients or undertake subcontract work.

Here’s a worker’s compensation insurance example: a construction worker can claim compensation if scaffolding falls on their head. However, they can’t file a claim if they get in a car accident while coming to the worksite.

What Does Workers’ Comp Insurance Cover?

Self-employed workers’ compensation insurance covers a number of risks. Let’s look at them below: 

  • Medical expenses for injury and illness caused due to work-related tasks or incidents
  • Lost wages
  • Rehabilitation services and retraining programs
  • Repetitive stress injuries
  • Occupational illnesses
  • Workplace violence
  • Mental health conditions
  • Death benefits for workers’ dependents
  • Protection from employee lawsuits (for lost wages and medical costs)
  • Disability

How Does Workers’ Comp Insurance Work?

Please note that by agreeing to get workers’ comp insurance coverage, employees also agree to give up their right to sue their employers for negligence. This is usually called a “compensation bargain” and is intended to safeguard both employees and employers. 

Employees usually forgo further recourse in return for promised reimbursement, whereas employers agree to a particular amount of liability while avoiding potentially bigger damage of a bigger negligence lawsuit. A workers’ comp insurance benefits all parties by preventing legal charges required to process a trial.

In addition, the majority of compensation policies provide coverage of medical expenses related to injuries sustained as a direct result of employment (go back to the example shared above). On the other hand, in some scenarios, employees can receive the equivalent of sick pay while they’re on medical leave. Moreover, in case an employee dies due to their employment, workers’ comp insurance also provides payments to their family members or dependents. 

Some of the most popular workers compensation insurance in the USA are The Hartford, ADPIA, CoverWallet, Insurance321, and others. 

Who Pays for Workers’ Comp Insurance?

Irrespective of the state you live in, employers typically pay for workers’ comp insurance. The cost for workers’ comp is a fraction of their payroll. Unlike health coverage, there are no employee payroll deductions for workers’ compensation insurance

If you are a business owner, you can get workers’ comp insurance coverage through:

  • A private insurance company (e.g., The Hartford)
  • A state-run insurance program

Additionally, keep in mind that some U.S. states require employers to pay for workers’ compensation through a monopolistic state agency. Therefore, it’s crucial to know what is required in your state and how you can get coverage. 

Is Workers’ Comp Insurance Required for Self-Employed? 

Workers’ compensation requirements vary by state. Almost every U.S. state requires business owners to provide workers’ comp insurance to their employees. However, if you are a sole proprietor, the coverage is optional. Nonetheless, if you work as a subcontractor or a general contractor, you might have to purchase workers’ comp coverage if the contract requires it.

In addition, if you hire subcontractors, you might be obligated to buy workers' comp insurance depending on how your state laws classify workers. Usually, even if subcontractors have their own compensation plans, the state might still require you to offer them workers' comp insurance.

When Do Sole Proprietors and Independent Contractors Need Workers’ Comp?

Individuals who work for themselves and don’t have any employees aren’t really obligated to buy workers' comp insurance. But independent contractors and sole proprietors might have to get a policy in order to:

    • Safeguard themselves against hefty medical bills and lost wages

  • Fulfill the terms of the contract

Who Is Covered? 

Do 1099 Employees Need Workers’ Comp?

Depending on which state you’re conducting business in, you might have to get workers comp for 1099 employees. Keep in mind that every U.S. state has its own laws when it comes to workers comp for 1099 contractors. Therefore, be sure to check the state’s guidelines to ensure you don’t get in trouble. 

Does Workers’ Comp Cover Part-Time Employees?

Yes. Even though part-time employees only get part-time wages, they’re still entitled to workers' comp benefits. This is, however, only true if you — as their employer — have decided to participate in the workers' comp program.

What Is the Difference Between a Self-Employed and Independent Contractor?

In a nutshell, being an independent contractor is simply a way to be self-employed. The core difference between the self-employed and independent contractors is quite trivial. 

Being self-employed refers to an individual earning money without working as an employee for somebody else. For example, it can be a freelance designer, a convenience store owner, or an artist displaying their work in galleries. 

On the other hand, independent contractors offer service on a contractual basis. For instance, an independent contractor might be hired to undertake a specific project or work for a particular period. 

Are Volunteers Covered Under Workers’ Compensation? 

When volunteers get injured on the job, business owners generally assume that workers' comp insurance would pay for their medical expenses. But the reality reveals the opposite. As volunteers aren’t paid employees, they aren’t usually covered under workers' compensation insurance by most insurers in most states. 

Are Volunteers Covered Under Workers’ Compensation Insurance in New York?

The only exclusion to workers’ comp insurance coverage includes volunteers of non-profit organizations who’re not getting a stipend.

As uncompensated and unpaid volunteers performing charitable work for a non-profit firm aren’t deemed employees, according to the New York law, they don’t have to be covered by the workers' comp insurance

However, volunteer ambulance workers and volunteer firefighters receive benefits for injuries or death suffered in the line of duty under the Volunteer Ambulance Workers' Benefits Law and the Volunteer Firefighters' Benefits Law. 

How Much Does Worker Compensation Insurance for Self Employed Cost?

The cost of workers’ comp insurance coverage depends mainly on a business’s unique risks, and thus, there is no fixed price for it. Expect to pay a minimum of $250 for a workers’ comp plan per year. 

Apart from a business’s risk factors, a workers’ comp insurance company might also use several other elements to calculate the cost for workers’ compensation coverage, including: 

  • The location (state, city, etc.) you conduct business in 
  • Your annual total payroll
  • Your claims history 
  • Your total years of experience
  • The kind of work performed by employees

According to the National Safety Council, the average cost of a workers’ compensation claim is around $40,000. Nonetheless, paying for a workers’ comp plan is still a better deal for any business. That is why several small businesses buy a policy even when it isn’t required by the law.

Workers’ Comp Rates

Workers’ comp rates vary significantly from state to state. For example, in 2021, business owners in Oregon are expected to pay on average $1 for every $100 of payroll for workers’ compensation. However, in California, the average workers’ comp rate for 2021 is expected to be $1.56 for every $100 of payroll.

As explained earlier, the differences in each state’s workers’ comp rates are linked to numerous factors. For instance, physically demanding work typically results in higher premium rates, and so does the history of work-related accidents. 

In addition, the state where you conduct business also has a huge impact on the workers’ comp rates. Keep in mind that workers' comp rates are ever-changing, and over time, they usually tend to decrease as overall workplace safety improves.

How Is Workers’ Comp Calculated?

The cost of workers’ comp is calculated by the following equation:

Workers’ Comp Premium = Payroll per $100 x Workers’ Class Code Rate x E-MOD*

Workers’ Class Code Rate – Every state has its own classification code based on the risks associated with each kind of work employees perform. The codes are assigned by the National Council on Compensation Insurance (NCCI). 

*Experience Modification RateWorkers’ comp insurance providers use this metric to compare the employer's claims history with the industry average to predict future claims risks.

Is Workers’ Compensation Taxable?

Simply put, workers' comp benefits aren’t taxable. It doesn’t matter if an employee receives benefits for a back injury, slip and fall accident, tendinitis, muscle strain, or carpal tunnel. In the majority of cases, they won’t have to pay workers’ compensation tax.

What Is the Penalty for Failing to Get Independent Contractor Workers’ Compensation Insurance?

Penalty for not having workers compensation insurance varies from state to state as each has its own workers comp insurance laws. For example:

  • In the state of Arizona, business owners can face a civil penalty of $1,000.
  • In the state of New Jersey, failure to get workers' compensation insurance is deemed a criminal offense, carrying a punishment of a $10,000 fine or imprisonment of up to 18 months.
  • In the state of Massachusetts, business owners might have to pay civil fines of up to $250/day, criminal charges of up to $1,500, or face imprisonment. 

We strongly recommend you consult with your attorney and check state laws related to workers’ comp insurance to ensure you’re classifying employees properly and, if necessary, get workers' comp coverage to avoid such hefty penalties.

How to Know if Somebody Is a Contractor or an Employee?

The difference between a contractor and an employee is primarily a legal question. The status they belong to, impacts the way you pay them and how they pay taxes.

Employees are hired by your project and work under your guidance. You will usually set their schedule and work assignments. On the other hand, contractors are freelancers who run their own business but are employed to do a specific task for your project. Contractors take care of the schedule and work tasks on their own.

Remember that the law classifying a worker as an employee or a contractor varies from state to state. In addition, since it’s open to interpretation, it can get extremely confusing. Therefore, it’s best to consult with a business lawyer to ensure that everyone working for your business is appropriately classified, and you carry the proper workers' comp insurance coverage.

Where to Get Workers’ Comp Insurance for Self-Employed?

Here we have highlighted some of the best workers’ comp insurance carriers that can provide you with the necessary protection and satisfy your unique needs as a self-employed business owner: 

Workers’ Comp Insurance Carrier  Ideal for 
Employers Self-employed owners seeking to hire workers for the first time
The Hartford Self-employed owners in numerous industries seeking a “pay-as-you-go” workers’ comp 
CoverWallet Companies with less than 10 employees
State Farm Artisan contractors working under a general contractor or independently
Liberty Mutual Small businesses operating in high-risk industries where employers need quick claims handling

Closing Note

Whether you are an independent contractor or a sole proprietor, it’s best not to skip worker compensation insurance for self employed. 

We understand that workers’ comp insurance might not make much sense for every solopreneur. But those with considerable risk for injury or work-related accidents that could lead to loss of income should definitely consider buying a policy. 

We strongly recommend you to get the protection with a workers' comp insurance carrier that best understands your unique needs as a self-employed business owner.


Can you claim workers comp if self-employed?

If you're an independent contractor, a sole proprietor, or a freelancer, you are legally considered self-employed and thus, aren’t automatically covered by workers' compensation insurance. So, you can’t claim for workers comp if self-employed.

Can I buy workers comp for myself?

In certain states, a sole proprietor isn’t required to buy workers’ compensation insurance. However, if you work as a subcontractor or a general contractor, you might have to get workers' comp if the contract requires it.

Do you need a workman's comp for 1099?

Workers with a W-2 tax form are deemed employees, whereas those with a 1099 form are considered contractors. Generally, you don’t need a workman's comp for 1099. Nonetheless, depending on your state laws, you might be required to provide it.

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