In every U.S. state, sole proprietors are not required to carry workers’ compensation insurance if they have no other employees.
Below, we dive into some nuances that solopreneurs should consider when debating whether or not to carry work comp.
>> Check your state to see its specific requirements for sole proprietors. <<
First and foremost, as a sole proprietor, you might not be obligated to secure workers' compensation insurance for yourself, but it may be necessary for any partners or employees you have, regardless of whether they work part-time or full-time. It's crucial to understand the regulations in your state, as they can vary. (And keep in mind that insurance policies are typically based on the payroll, so part-time vs. full-time employment generally doesn’t matter.)
If your employees are based in a state different from yours, make sure to review the requirements in the state where they perform their duties.
It's also important to distinguish between contractors and employees carefully. There are guidelines to determine a worker's status as either a subcontractor or an employee, which could influence workers' compensation considerations.
Even if you’re not required to have coverage, you might wonder whether you should carry a policy anyway.
As your own boss, work comp may not be required. But it doesn’t mean you couldn’t get hurt in your line of work. A policy can provide financial support for medical expenses and lost income if an injury prevents you from working.
If you elect not to carry work comp coverage, make sure you take proper precautions to keep yourself safe and protect yourself (physically and financially) in the event of an injury. This can include health insurance and/or disability insurance.
Even if you’re not legally required to carry a work comp policy in your state, you could be contractually required by a company you’re working with.
From the hiring company’s standpoint, an independent contractor that gets injured could claim to be an employee, file a workers’ comp claim, and win. This can vary depending on the nature of the relationship and the legal precedent of your state, but particularly in states that tend to side with employees in work comp cases, companies may require proof of insurance to offset their own liability.
If you run into this situation, you have several options:
No matter how small your business, you need some form of insurance to protect it. This might include general liability, a BOP (Business Owner’s Policy), life insurance professional liability insurance (or errors and omissions insurance), or business property insurance.
Talk to an insurance agent about the policies and coverage that’s right for your business.
Interested in work comp? You can get started on a free, no-obligation quote on your next coffee break.
Get a workers’ compensation insurance quote today, in 5 easy steps!