In most states, workers’ compensation is mandatory. What’s considered mandatory and optional varies from state to state. One section that tends to have a larger gray area is self-employment.
You’d think because you’re self-employed that you wouldn’t need workers’ compensation. Yet, you can become injured just as easily when you work for yourself and not a company.
When it comes to self-employed workers, a lot comes down to the type of job you have. Below, we’ll review workers’ comp insurance for self-employed workers.
What Is Workers’ Compensation for Self-Employed Workers?
Workers’ compensation will protect you if you get a work-related injury. Your health insurance may cover your medical bills, but that isn’t always the case. Moreover, it won’t cover any money you lose when you’re not able to work.
If you can’t work, workers’ compensation will give you a percentage of the money you would have made while you’re unable to work. In some instances, workers’ comp will help pay your medical bills if your insurance won’t cover it all.
Workers’ comp is really important as it’ll help keep your business from going bankrupt. If you’re self-employed there is no one else you can lean on, you’re on your own. The longer you’re out of work and don’t have workers’ comp, the faster your bank account will drain.
If you don’t work in a more dangerous job, you may not need workers’ compensation. For example, if you’re a roofer, plumber, electrician, etc. you may be more prone to accidents than someone who works at a desk all day.
Self-employed workers tend to refer to individuals who are:
- Business owners (and the only person in the business)
Is Workers’ Comp Insurance for Self-Employed Workers Mandatory?
There are different types of self-employment. The type you have will determine if you’re required to have workers’ compensation. Moreover, what is and isn’t mandatory changes depending on what state you live in.
For example, if you’re a sole proprietor in Florida, coverage is optional. You’d get what is known as Election of Coverage if you wanted workers’ comp insurance.
This is not the case if you’re an individual contractor or work for a construction company. For these types of employment, you’ll be required to have workers’ compensation coverage.
Sometimes companies, and not the state, will want you to carry coverage. In those instances, they won’t hire you if you don’t have workers’ comp. This applies to independent contractors and subcontractors, as they have higher risk jobs.
Companies don’t want to be financially liable for you.
If you’re required to carry workers’ compensation, in some cases, you may be able to file for an exemption. For example, in Florida, when filing for the exemption you’ll need to prove you own at least 10% of the company. Alternately, you can register your company with the Florida State Department.
For most states, workers’ comp is required if a company has a certain number of employees. This can make it harder for self-employed workers to get coverage. The premiums for one person may not be significant enough for an insurance company to offer you coverage.
What Is the Cost of Workers’ Compensation?
The cost to you will be determined by the state you live in, as workers’ comp is not nationally mandated.
Next, how much you make annually plays a role (payroll per $100). How much you get from your payroll will be based on the risk (work classification) of your job. If you have a clerical job, you’ll get a lower rate, but if you have a more labor-intensive job you’ll get a higher rate.
For example, Florida has more moderate rates compared to other states. Their low rate is $0.26 per $100 payroll (clerical) and their high rate is $19.40 (physical labor).
Nebraska has some of the lowest rates, with their low rate at $0.13 and their high rate at $7.40. California has higher rates with its lower rate at $0.40 and its higher rate at $33.57.
Your claims history (experience modification rate) will be considered when determining your rate. This is based on your payroll and work classification. It reviews your past claims and predicts future losses. If you have a good claims history (meaning fewer losses) you’ll have a lower rate.
Finally, insurance carriers have different insurance rates. Fortunately, most states mandate that they have a base rate so prices don’t creep up too high.
Do You Need Other Forms of Insurance?
If you’re self-employed you may want other forms of insurance. Your business may be at risk if you don’t have the right types of insurance to protect it.
Types of insurance you may want to purchase include:
- Commercial auto insurance – if you work with cars/vehicles
- Property insurance – if you work from home
- Equipment breakdown coverage or contractor’s equipment coverage – if you have more expensive equipment this coverage can cover repairs or replacements
- Professional liability insurance or errors and omissions insurance – if your business works with customers and they have the potential to be unsatisfied
- General liability insurance – if there is potential for bodily injury or property damage to a third party
Do You Need Workers’ Comp Insurance?
Workers’ comp insurance for self-employed workers can be really important. Consider the risks of your job and whether having workers’ compensation is worth it for you. Not all jobs are created equal when it comes to risking your health.
Review our blog to learn about the different types of workers’ compensation insurance.