Workers' compensation for the self-employed and independent contractors

People who work for themselves and don't have employees are generally not required to purchase workers' compensation insurance. However, independent contractors might purchase a policy to:

Some businesses require anyone performing work for their company to carry their own insurance policies, including independent contractor workers' compensation insurance. This limits the company's liability, and the chances that the business will financially responsible if a contractor is injured on the job.

Even if you already have health insurance, most policies exclude coverage for work-related illnesses and injuries. Purchasing independent contractor workers' comp insurance ensures that if you're injured while working, your medical bills will be covered. Workers' comp can also help replace wages that are lost during recovery from an injury or illness.

If you hire subcontractors, you may be required to purchase workers' comp coverage depending on how the laws in your state classify when workers are considered employees. Even if subcontractors have their own workers' comp policy, your state might still require you to provide workers' comp coverage for them.

No, which is why it can often be confusing for the self-employed, independent contractors, and small business owners with no employees to know when they might be required to purchase workers' compensation coverage.

For example, the state of Texas generally doesn't mandate that anyone purchase workers' comp coverage, but New York requires coverage as soon as a business hires one employee. It's important to review the workers' compensation laws in your state to make sure you are in compliance.

As many independent contractors are normally exempt from workers' comp requirements in several states, a workers' comp ghost policy may be an effective alternative option. It can help self-employed individuals provide a certificate of insurance (COI) without having to pay for a full workers’ compensation policy.

The laws determining if a worker is classified as a contractor or an employee can be confusing, open to interpretation, and can vary from state to state. Traditionally, workers who receive a W-2 tax form are considered employees and those who receive a 1099 are contractors. However, you might be required to provide workers' compensation for 1099 contractors depending on the laws in your state.

If a contractor working for you is injured and your state determines the worker should have been classified as an employee, you could face fines or even jail time for not carrying a workers' compensation policy. The penalties vary by state.

Consider talking with a business attorney to make sure your workers are not misclassified, and that you have the appropriate workers' compensation coverage.

Every state has its own set of laws governing workers' compensation, including what the penalties are for failing to carry coverage. For example:

• In Arizona, you can be assessed a civil penalty of $1,000.
• In Massachusetts, you can face civil fines of up to $250 a day, criminal fines of up to $1,500, and jail time.
• In New Jersey, failure to carry workers' comp is considered a criminal offense punishable by a fine of $10,000 or imprisonment for up to 18 months.

Check with your state or your attorney to make sure you are classifying workers properly and, if required, purchase workers' compensation insurance to avoid these costly penalties.

In addition to workers' compensation insurance, independent contractors may need:

• General liability insurance
• Commercial auto insurance
• Errors and omissions insurance

Compare quotes from multiple top-rated U.S. carriers with Insureon’s free online application. Find quotes for workers' compensation insurance for the self-employed and independent contractors, as well as other policies to protect your business.