Small business owners may need to buy workers’ compensation insurance coverage even if they don’t have any employees, though it depends on their state’s laws and line of work. The number of employees is a key factor in whether you need workers’ comp, but it’s not the only consideration.
Workers’ compensation insurance covers medical costs and lost wages for work-related injuries and illnesses. This coverage is required in most states for businesses with one or more employees, regardless of whether they’re full-time or part-time employees.
Personal health insurance won’t cover work-related mishaps. It also won’t cover someone for lost income if they’re injured on the job and unable to work for a while.
A workers’ compensation insurance policy makes sure you and any injured workers are covered, for both medical bills and disability benefits during recovery.
Required in most states, workers’ comp protects employees from on-the-job injuries.
And while self-employed individuals and independent contractors are exempt from coverage requirements, they might purchase a policy to fulfill a contract or cover medical bills and lost wages from a work-related injury.
In most cases, personal health insurance won’t cover work-related mishaps or lost income from an injury on the job.
Depending on your state, if you hire subcontractors, you may be required to provide workers’ compensation for them.
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Depending on the workers’ compensation laws in your state, there are times when you may need this coverage even if you don’t have any employees.
For example, in California, specific types of contractors are required by state law to carry this policy, even if they don’t employ anyone else.
Some clients and government contracts will require this coverage before working with you, as a way of reducing their liability. They may ask you to verify your workers’ comp coverage by showing them a certificate of insurance (COI).
You might also need workers’ comp for yourself, in case you’re injured on the job. Your regular health insurance is unlikely to cover you for work-related injuries and illnesses.
If you’re a general contractor or operate in the building trades, it’s a good idea to check with your state’s department of labor to verify whether you must provide this coverage or if you qualify for an exemption.
You may need to provide workers’ comp insurance for independent contractors, depending on how your state defines contractors and employees.
Independent contractors are exempt from workers’ comp requirements in several states. But in some cases, even if your subcontractors have their own workers’ comp insurance, you might still need to provide coverage for them based on the coverage requirements in your state.
Another way to reduce your workers’ compensation insurance costs is to classify your employees correctly. This is important for complying with state laws and avoiding fines. You can save money on your policy by identifying which of your employees are at a lower risk of injury, and therefore less expensive to insure.
You may qualify for a pay-as-you-go workers' compensation plan, especially if your payroll figures tend to fluctuate throughout the year. Pay-as-you-go plans start with a low upfront premium and let you make monthly payments based on your actual payroll figures, instead of an estimated payroll.
If your business has few employees and an especially low risk of a workers’ compensation claim, you might be eligible for a minimum premium workers' compensation policy, which offers the smallest premium an insurance company will sell a policy for.
Some sole proprietors, independent contractors, and self-employed individuals may qualify for a workers’ comp ghost policy as a way of obtaining a workers’ comp certificate of insurance without paying the full premium of a workers’ comp policy.
Keep in mind that a ghost policy doesn’t provide actual workers’ compensation benefits—it’s just a way of offering proof of insurance so you can qualify for contracts. It wouldn’t cover your medical expenses or any lost income if a work-related injury left you unable to earn a living.
For example, a limited liability company (LLC) wouldn’t be required to buy a workers’ compensation insurance policy for its corporate officers, yet it might still have to provide proof of insurance to qualify for contracts.
A business might cover its workers’ comp benefits through self-insurance but would still have to provide proof of insurance. In either case, a ghost policy would provide the proof of insurance without providing actual coverage.