You’re a small business owner, and generally you consider your work to be fairly risk-free. But, we all know that life has a way of throwing us curveballs—which means mistakes can still happen.
Maybe you’re visiting a client in the middle of winter, and you slip on some ice and injure your back. Or, perhaps a piece of heavy equipment malfunctions and breaks your hand.
Those are all cases when you might need workers’ compensation (or, at the very least, want it).
What is workers’ compensation insurance?
Workers’ compensation insurance (often abbreviated to workers’ comp insurance) is an insurance policy that covers work-related injuries.
If someone gets hurt while they’re working, their workers’ compensation coverage will compensate them for their medical expenses and necessary rehabilitation, as well as the wages they lose out on while they recover from their injury. These workers’ comp benefits likely aren’t taxable.
Most health insurance policies exclude work-related injuries. That’s why workers’ comp coverage exists—to help prevent a major financial burden when somebody is injured on the job.
What is covered under a workers’ compensation insurance policy?
As Workplace Fairness explains, there are four different types of work-related injuries that qualify for workers’ compensation. These include:
- Physical injuries on the job
- Pre-existing conditions that are accelerated or aggravated by work
- Injuries that happen during breaks, lunch hours, and work-sponsored activities as well as injuries caused by company facilities
- Injuries resulting from mental and physical strain at work
That’s pretty broad, so it’s helpful to also take a look at what a workers’ comp policy doesn’t cover. This includes self-inflicted injuries, injuries that occurred when an employee was intoxicated, injuries that happened when an employee wasn’t on the job, and injuries suffered while a worker was committing a serious crime or violating a company policy.
Who is required to carry a workers’ compensation policy?
Workers’ compensation insurance coverage is mandated and regulated on a state-by-state basis. The National Federation of Independent Business has a helpful resource that breaks down the workers’ compensation laws by state.
However, be aware that the vast majority of states require employers to carry a workers’ compensation policy if they have full or part-time employees. The number of employees can vary—some states require employers to carry a policy if they have at least one employee, while other states set the minimum at three employees. If you lay off all your employees, you don’t have to keep your workers’ comp policy anymore, but it can save you money if you hire some again within 30 days.
Texas is the only state where workers’ compensation insurance is optional for private employers (with a few exceptions).
Do you need a workers’ comp policy if you’re self-employed?
None of the above mentions sole proprietors or independent contractors. So, if you fall into one of those camps, you’re likely thinking, “Do I need workers’ comp insurance if I have no employees?”
Here’s the short answer: Nope. Business owners who don’t have employees working for them are not legally required to carry a workers’ comp policy.
But, even though workers’ compensation insurance isn’t a requirement for you, you might still want to consider investing in it, especially if any of the below are true for you:
1. You work in an industry where you’re at high risk for injury
If injuries are common in your line of work (for example, construction), then you’ll want to think seriously about getting workers’ compensation for yourself.
If and when an injury happens, you’d hate to not only have to stomach hefty medical bills, but also lose out on paychecks as you recover.
2. Your clients request or require insurance coverage
It’s fairly common for clients to have a section in their contract that requires the contractors they work with to carry some sort of insurance coverage.
Usually, a general liability policy is enough. But, particularly in high-risk industries, your clients might ask that you also carry a workers’ compensation policy.
What’s the difference between the two? Here’s the simplest way to think about it: A general liability policy protects your business, while a workers’ compensation policy protects your body.
For example, if you were repairing a customer’s roof and accidentally caused property damage, that would be covered by your general liability insurance. But, if you slipped off the roof and broke your own leg, that would be covered by your workers’ compensation insurance.
3. You have subcontractors
This is another one of those rules that varies by state. In some states, subcontractors are actually viewed as employees—which means you’re required to carry a workers’ comp policy to cover them.
It’s also important that you aren’t misclassifying employees as independent contractors. This can lead to some fines and penalties that really sting when you’re a small business owner.
Generally, independent contractors have a high degree of independence. That means you don’t have a say in what, when, or how work gets done. If you’re exercising a lot of behavioral control, then chances are that’s actually an employment relationship.
Confused? Don’t worry—the IRS offers a ton of helpful advice for understanding the distinction between an employee and an independent contractor.
How do you get a workers’ compensation policy when you’re self-employed?
You think workers’ compensation insurance sounds like a good idea for your business. Here’s the next question that’s bouncing around in your brain: How do you go about getting coverage?
It’s not always as simple and straightforward as you’d like to think, because it’s not particularly profitable for insurance companies to cover an individual.
If you’re interested in purchasing a workers’ compensation policy for yourself, ask your broker about coverage. They can help you explore your options and assist you in making the best choice for your own business. Don't have an insurance agent? You can find one by asking for recommendations from other business owners or by visiting this directory from The Independent Insurance Agents and Brokers of America, Inc.
You can also check if your state has a state-sponsored workers’ compensation fund. These are government-funded and provide coverage for business owners who can’t find a workers’ compensation policy on the private market.
If you end up hiring employees, consider a platform like Hourly, which offers workers' comp insurance and payroll services for small businesses. Powered by real-time data, Hourly’s platform simplifies the highly complex workers’ comp process. It syncs your payroll data directly to your workers’ comp policy so you only pay exactly what you owe on your premiums, not an estimate. Its goal is lower audit risk, faster payroll runs, and better claims and safety services for small businesses everywhere. Hourly is a licensed insurance agent with products underwritten by various insurance companies.
Workers’ compensation can boost your peace of mind
You make every effort to be careful on the job, but mistakes still happen. And, when those blunders result in an injury? You’ll likely find yourself wishing that you had workers’ compensation coverage.
It’s certainly not required when you’re self-employed, but it can still be a good idea to protect yourself and your business.
Use this as your guide to workers’ compensation insurance, and you can rest a little easier knowing that you’re covered when the unexpected happens. After all, as a business owner, you could use one less thing to worry about.
1. Introducing Yourself
Your introductory email needs to pack a lot of information into a small package. Try something like this:
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Hello Jane,
My name is John Doe and I work for ABC Agency, where we provide business insurance policies to many of Dallas' rockstar small businesses.
Congratulations on your new business, Jane's Bakery. Are you wondering if you have all the insurance you need? Or if your policies will really cover you in a pinch?
At ABC Agency, we pride ourselves on providing robust, comprehensive coverage options to companies like yours with flexible, pay-as-you-go plans.
Are you available this week to talk more about how we can help? I can help you find the most affordable rates and the best policies out there.
I look forward to speaking with you soon.
Cheers,
John Doe
2. Presenting a Quote
Once you've met with your potential client, a quick reply with their quote will get the ball rolling.
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Hi Jane,
Thanks so much for meeting with me this morning. I loved touring Jane's Bakery–I can still smell those delicious chocolate chip cookies baking! You have a great location, and I'm sure you're going to do great on Front St.
After reviewing my notes, I've pulled together an insurance quote for you (attached). I recommend a business owner's policy. A BOP includes several insurance products in one: liability, property insurance, and business interruption insurance. It offers robust coverage at a competitive price.
I'll call you in a few days to see what you think about this insurance plan. In the meantime, if you have any questions, don't hesitate to email me or call me at [phone number].
Again, thank you for your time today. I look forward to working with you in the future.
Cheers,
John Doe
3. Thanks for Purchasing a Policy
Gratitude is important! It's never a bad idea to thank your clients for their business.
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Hi Jane,
Thank you for choosing a business owner's policy with ABC Agency. We know it's so important to get the right coverage for your business, and we are honoured you've placed your trust in us.
We're excited to work closely with you, and our no. 1 goal is to make sure you're business is always protected.
Do you have any questions? We are here to help. Reach out whenever something comes to mind.
Thank you again for choosing ABC Agency to insure Jane's Bakery.
Cheers,
John Doe
4. Welcome Email
A welcome email helps clients feel like you're there to help–and can softly pitch other insurance products you offer.
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Dear Jane,
Welcome to the ABC family! We are thrilled to have you as a new customer and can't wait to meet all of your insurance needs.
As an independent insurance agency, we work with multiple insurance providers to find the best coverage options for all our customers. If you need any other type of insurance–like [include additional offerings unique to your agency, like life insurance, health insurance, home insurance or anything else]–we can help you too.
Do you want to discuss any of these policies?
Cheers,
John Doe
5. Introducing a New Product
A happy client may want to expand their business with you.
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Hello Jane,
I hope all is well with you and Jane's Bakery. I stopped in yesterday for a blueberry muffin and coffee, and they were delicious. I loved the hint of cinnamon in the muffin! Was that your idea?
I wanted you to be the first to know we are now offering commercial vehicle insurance to our policyholders. Auto insurance for your catering vans is super important since your personal car insurance won't cover them.
We're offering this insurance coverage solely to our current business clients at the moment and have some very competitive rates.
Would you like me to work up a quote for you?
As always, thanks so much for being a part of the ABC family.
Cheers,
John Doe
6. Asking For Referrals
Once your relationship is established and comfortable, let your clients help you grow.
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Hi Jane,
You've been a valuable member of the ABC family for two years now, and we so appreciate your business–not to mention the muffins you supply for our monthly meetings!
Because you are a valued policyholder, I wanted to ask a quick favour. I know you are active in the local Chamber of Commerce, and I'm hoping you might know some colleagues who would benefit from working with our insurance company.
Referrals are one of the most effective ways to connect with our community since people really trust their friends, family and colleagues. Is there anyone you'd recommend I speak with?
Remember that in addition to business insurance products, we offer everything from life insurance policies to pet insurance.
As a thank you for your help, we will send you an Amazon gift card of $100 when your referrals buy insurance from us.
Thanks so much for your help!
Cheers,
John Doe
7. Policy Renewal
If your client needs to renew their policy with you, send an email like this:
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Hi Jane,
I hope you're doing well! What a year it's been—from being listed as one of the top 5 bakeries in Dallas to being an official vendor for the city—you have so much to be proud of.
Just a heads up that your business owner's policy is up for renewal soon and will expire on June 15, 2023.
If you're still happy with the coverage, we can easily renew it for you.
Do you have some time to chat this week?
Looking forward to serving you again!
Cheers,
John Doe