Having a ghost policy isn't just a rule for firing employees who ghost you, it's actually a nice workaround for self-employed folk who need to prove they have workers' compensation insurance but don't actually have any team members to cover. But why would you ever do this?
If you're looking to comply with state laws or a potential client won't work with you unless you have a worker's comp certificate of insurance–then a ghost policy makes sense.
Ghost policies, also known as "bare minimum" or "minimum premium" workers' compensation insurance policies, are permitted in about half the U.S. states, but the exact legal parameters are subject to state regulations.
As with all types of commercial insurance, you should always check with your state's Division of Workers' Compensation or its equivalent before committing to a ghost policy.
A ghost policy is a type of workers' comp insurance policy for businesses that don't have employees on their payroll. It isn't intended to provide insurance coverage but allows you to get a workers' comp certificate of insurance (COI), and if you do end up hiring an employee later on, you can add them to the policy.
So what's the point? Here are some reasons you may want one:
These policies have the same language as any workers' comp policy–the only difference is that they aren't intended to provide coverage.
So, as soon as you hire someone, you will need to update the policy to include them. In fact, your insurance company will audit your business annually to make sure you did not end up hiring anyone that year.
If you do hire someone but do not adjust your policy accordingly, you may be faced with fines or even the cancellation of your policy.
With a ghost policy, you get a certificate of insurance, COI, that you can show to clients or anyone who needs it. However, you can't make any claims on this policy, neither for yourself nor for anyone else.
Since it's not intended to provide coverage, a ghost policy costs way less than one that covers employees. Typically, the cost is just a minimum premium, which is the smallest amount an insurance company will charge for a specific risk.
In some cases, business owners may find ghost policies an attractive option because they don't want to pay high premiums for full workers' comp coverage. However, they need to meet state requirements or provide proof of insurance to clients or general contractors.
With Hourly's full-service workers' comp and payroll platform, your workers' comp policy is updated automatically–the second you add employees. How? The platform syncs all your company's payroll, time tracking and GPS data directly with your workers' comp policy–in real-time.
That way, you won't get slammed with a huge bill at the end of the year for employees you never got coverage for, and you'll stay compliant with the law (since workers' comp is required in almost every state).
Luckily, insurance premiums for a ghost policy are generally less than a policy that includes employee coverage.
Although you will need to ask for a free quote from Hourly or your insurance agent to know the exact cost of a policy, most self-employed business owners pay between $1,000-$2,000 annually for a ghost insurance policy.
Ghost policies can be helpful to sole proprietors, partnerships, single-person LLCs, single-person S-corps, independent contractors, or small business owners who don't have any employees.
In some states, workers' compensation insurance is required for every single business, even if you have no employees, so this is a good option if you're looking to fulfill those requirements without buying a full policy. Here are a few other eligibility requirements:
If you're a business owner who is concerned about getting a work-related injury, then a ghost policy is not the best choice.
The same goes for any uninsured subcontractors you may hire. This may also be a concern for your business partners, as they are left open to litigation if you are not covered.
Not to mention, if you accidentally overlook adding an employee to your policy and they get injured while working on the job site, you may end up being responsible for their medical bills. That's why some states have banned ghost policies altogether.
If you're considering getting a ghost policy for your business, it's important to make sure you're familiar with your state's requirements and any associated risks. Don't hesitate to call us if you need assistance or have any questions about ghost policies.
Here are a few workers' comp-related questions that are commonly asked:
A workers' compensation ghost policy is a type of workers' compensation insurance that isn't intended to provide coverage, but it's handy for showing clients or the state that you have insurance. You might need one of these policies to land a job or fulfill state requirements.
A ghost rate is the minimum amount that insurance carriers have to charge in each state, setting the baseline for what you'll have to pay.
There are actually more than four, but here are some of the most common issues that are outside the scope of workers' comp:
That being said, every carrier is different, and there are gray areas. Check with your insurance agent to find out what's specifically covered under your policy.
In California and other states, figuring out who should be covered by workers' comp can be a bit of a headache.
It can be tricky to tell the difference between an employee and a subcontractor or independent worker.
Subcontractors are basically folks who are hired by the main contractor to do a specific job, like a plumber or electrician on a construction site. Usually, subcontractors don't need workers' compensation coverage unless they have their own workers on the job.
While some states don't allow them or aren't too thrilled about them, ghost policies can still serve a purpose.
For instance, if you're a solo act and need to show proof of insurance to win a bid or follow state regulations, a ghost policy can do the trick. Just be careful if you end up hiring people down the line because you'll need to make sure your workers' comp coverage is up to date.
Ghost policies aren't right for every small business—or even for most of them. They are simply another tool available to you, just in case you need it.
Your best bet is to get Hourly, so your workers' comp is automatically synced with your payroll. That way, whenever a team member comes on board, your policy will update right away.
It might take a little bit of time, but having the right workers' compensation insurance policy could end up saving you some serious cash in the long run. Trust us, there's nothing worse than being haunted by unnecessarily high insurance premiums!
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