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.