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.