Do You Need Workers’ Comp Insurance For Self-Employed Workers?

It’s a valid question. Almost every state requires that employers offer workers’ comp to their employees, but does that include sole proprietors? The short answer is no — the law does not require workers’ comp insurance for self-employed workers. 

But just because it isn’t required by law doesn’t mean it’s not worth pursuing. We’re breaking down everything you need to know about workers’ comp insurance for self-employed workers, including how it works, if it’s right for you, and how to find the right plan.

What Is Self-Employment Workers’ Comp?

Workers’ comp is an insurance policy that protects the safety and well-being of your employees. When employees are hurt on the job, workers’ comp helps lessen the financial burden while they take time off to recover. 

It is a state-regulated program and therefore is mandatory for any business with one or more people on its staff. 

Self-employment workers’ comp protects workers from the same risk of financial damages, but is not required by law. Depending on which state you are in you may have very limited options for a self-employment workers’ comp insurance policy.

Workers’ comp insurance for self-employed people might be a smarter decision for those working in strenuous or labor-intensive industries like construction. Availability can depend on the risk of getting seriously injured. 

Workers’ comp insurance for self-employed workers protects them from the same financial burdens of traditional workers’ comp. This includes items such as:

• Medical expenses for work-related injuries or illness
• Stress-related mental injuries
• Rehab and physical or occupational therapy programs
• Funeral costs or death benefits for dependents

Do I Need Workers’ Comp For Myself?

In Pennsylvania, any self-employed workers or sole proprietors are legally exempt from the requirement of purchasing workers’ compensation. Though, depending on the industry you’re working in and the nature of your job, it could be advantageous to pursue.

So how do you know if you need workers’ comp for yourself? The answer will depend on the day-to-day work that you complete. As a starting point, here is a short list of questions to consider:

• Do I work in an industry like construction, electrical, or plumbing where I could be put in dangerous situations?
• Do I have to operate any large machinery?
• Am I required to travel for work often?
• Do I have to lift and carry heavy objects?
• Am I traveling to different job sites frequently?

If you answered yes to any of the above questions, it might be worth it for you to consider self-employment insurance. 

Do Independent Contractors Need Workers’ Comp?

Similar to self-employed workers, independent contractors are not legally required to purchase workers’ comp insurance. But if you’re an independent contractor without insurance, you might have trouble getting hired for a job.

When independent contractors sign a contract to work on a job, they aren’t covered by the employer’s workers’ comp policy. But if contractors don’t have any form of self-employed coverage and they get hurt on the job, the company could still be held liable. 

Therefore, some companies looking for an independent contractor, especially those in the construction industry, won’t even consider signing a contract with someone who isn’t covered.

Most companies can’t afford the liability of covering their independent contractors who are hurt on the job. If you’re a contractor who works in a high-risk field, the best way to protect yourself from financial ruin is to stay covered with a self-employment workers’ comp policy.

Can I Use My Own Insurance Instead Of Workers’ Comp?

What if I have a personal insurance plan in place? Do I really need a workers’ comp policy?  If you’re looking for certainty of coverage for work-related injuries, you should have a self-employment workers’ comp plan even if you have personal insurance. 

Your personal insurance plan is in place to cover the financial burdens of accidental bodily injury that you incur in life. If you file for a claim to cover the costs of an injury that occurred on the clock, there’s no guarantee your policyholder will provide financial support. 

So generally speaking, no you cannot use your personal insurance instead of workers’ comp to cover costs from work-related injuries or illness.

How Much Does Workers’ Comp Cost?

If you’re a self-employed worker seeking a workers’ comp policy, the cost will depend on a variety of factors. Your premium may be determined by

• The type of work you provide (characterized by class codes)
• Your annual payroll
• Your history of workplace accidents
• Your job experience
• The state your business is located

Class codes are 3- or 4-digit numbers followed by a brief description of the industry. These codes help determine your workers’ comp premium. Depending on the state you live in, class code rates per job can vary. In all states, the code rates are shown per $100 of payroll. 

To calculate your workers’ comp premium, your insurance provider will use your state’s class code rate per $100 payroll and your experience modifier rate (or E-MOD rate). This factors in those other elements listed above like your job experience and history of workplace accidents. More claims usually result in a higher premium.

Keep in mind, most insurers charge minimum premiums for workers’ comp insurance, so the security of being protected in the event that work injuries or illness occurs is more valuable than flirting with the risk.

How To Apply For Self-Employed Workers’ Comp Insurance?

The reality is, this is a difficult coverage to place.  

Most large insurance companies will not want to work with a self-employed worker, because the coverage is not something they write very often. With limited markets, most insurance agencies cannot help with this coverage.

If you’re an independent contractor or self-employed worker seeking workers’ comp, you’ll find the most success by reaching out to a small, private-owned insurance company that specializes in commercial insurance to see what options are available to you. 

Robertson Insurance & Risk Management provides workers’ comp solutions for a variety of workers. Reach out to a team member to request information and to see if you qualify.