If your business is a sole proprietorship and you have no employees, in most cases you aren’t required to carry Workers Compensation coverage. However, there are a few reasons why purchasing Workers Comp (for yourself) might be a good decision — or even necessary to meet contractual requirements for a job where you’ll be working as an independent contractor.
There’s another consideration — and it’s a big one. We tend to think of a sole proprietor as a lone-wolf, running a business on his or her own — but a sole proprietor can still have employees. In nearly every state, a business with employees has to provide Workers Compensation coverage for its workers. In some cases, the business owner can exempt his or her self from coverage as an employee. In other states, owners can opt-in for coverage. Exemptions for corporate officers are common but may require that you submit an election to be exempt from coverage.
Workers Comp insurance is designed to provide no-fault coverage for workers injured on the job or for employees who contract a work-related illness. In providing this coverage, Workers Compensation also shields the business against some types of lawsuits related to work injuries.
Rules vary by state regarding how many employees trigger a requirement for coverage, and in some cases an independent contractor who helps you out regularly might be considered an employee by the state. This means that some sole proprietors who think they don’t have employees might find that the state disagrees with that assessment, possibly exposing the business to fines, penalties, and liability for the benefits that Workers Comp coverage would have provided if a worker is injured on the job.
Some states, like North Dakota, utilize a state fund to pool Workers Compensation premiums and administer policies. Other states open the market to private insurers who are authorized to write your Workers Compensation policy.
Your Workers Compensation insurance provides some key coverages that protect your employees — and your business because, without coverage, your business could be liable for the benefits that Workers Comp offers. Medical expenses for work-related injuries and illnesses Even with safety training and the latest safety equipment, workplace accidents can (and do) happen. Workers Comp provides coverage for immediate and ongoing medical expenses related to work injuries or occupational illnesses. Ambulance rides, emergency room treatment, hospital stays, and ongoing medical expenses related to the work injury are covered by Workers Compensation.
Compensation for lost wages It's common for work-related injuries to result in some missed work time for the employee. Rules can vary by state but in most states, after a few days of missed work, Workers Compensation can provide a portion of your employee's earnings while they're unable to work. This benefits your business because you may have temporary payroll expenses while you train another worker or someone else takes on additional hours because one of your workers has been injured.
Rehabilitation and ongoing care Sometimes a workplace injury only results in minor medical care and a short amount of missed work time. Other injuries, however, can be more severe or more difficult to treat, leading to rehabilitation and ongoing medical care long after the injury was sustained. It's common for Workers Compensation coverage to provide for these expenses.
Funeral costs and death benefits Most workplace injuries are non-fatal but occasionally a work-related injury ends in a tragic fatality. Workers Compensation coverage can provide an allowance for funeral costs, absorbing some or all of the funeral expense, relieving some of the burdens for surviving family members. Support payments to surviving family members or dependents of the injured employee may also be available in some cases.
As a sole proprietor with no employees — and if you don’t have workers whom your state would deem to be employees — you typically aren't required to purchase Workers Compensation coverage. It's always wise to check the requirements for your state because rules vary from one state to the next and, of course, can be subject to change.
What you might find is that Workers Compensation may be required for some work contracts. In certain industries, it's very common for businesses for which you're providing a service to require that you have Workers Compensation coverage even though you are not an employee of that business. This practice is even more commonplace with Commercial General Liability insurance. If you wish to bid on certain jobs or do ongoing work for certain companies, it may be necessary for you to purchase Workers Compensation coverage for yourself.
Rates for Workers Compensation coverage can vary depending on three primary factors but are generally less expensive for smaller businesses, particularly those in low-risk industries. Each employee covered by Workers Compensation coverage is assigned a class code, which refers to the risk of injury associated with the type of work that employee does. In addition to rating based on class codes, Workers Compensation premiums also consider payroll figures and your claims history.
Many businesses that start as sole proprietorships can grow into much larger enterprises but there's still a need for proper insurance coverage while your business is small and growing. Workers Comp for sole proprietors can be a key part of your insurance coverage strategy. Other coverages, such as Commercial General Liability insurance and Commercial Auto Insurance, should be considered as well.
Commercial General Liability insurance (CGL insurance) In many cases, sole proprietors use their home as their headquarters. You may be surprised to learn that your home insurance policy excludes liability claims due to business-related activities. Coverage for business tools and equipment is also extremely limited on a home insurance policy. To address your business liability both at home and on the job, consider a Commercial General Liability insurance policy, which can protect your business against the liability claims due to bodily injury, damage to the property of others, or personal and advertising injury.
Commercial Auto Insurance Similar to the limitations found with home insurance, personal auto insurance typically excludes or limits coverage for business use of your car, truck, van, etc. A Business Auto Policy (BAP) provides a coverage solution for vehicles owned by the business or frequently used for business purposes. Essential coverages such as bodily injury liability and property damage liability are included with your policy. Medical coverage for injuries you may suffer due to a business auto accident is also usually included in your coverage as well. Medical coverage options vary by state.
These key coverages — and more — can be combined into a Commercial Package Policy to save money and focus your coverage choices on those that best protect your growing business. Just reach out to CoverWallet’s team of experienced insurance agents to get a fast, no obligation quote.