Workers' Comp for the Self-Employed

Workers' comp insurance, a requirement for most employers in most states, compensates employees who are injured on the job. The amount of coverage required generally depends on the risks inherent in the type of work performed. A roofing company, for example, will need to have a higher amount of coverage than an ice cream shop. But what if you're self-employed?

Whether independent contractors (ICs) and other self-employed workers need workers' comp coverage depends on a number of factors, including an individual's own tolerance of risk.

Workers' Comp: Self-Employed vs. Employee

If you're an employee and you receive a W-2 form at the end of the tax year, then your employer is most likely required to carry workers' compensation insurance. This covers expenses pertaining to most work-related injuries, including medical bills and lost wages, with some exceptions.

In exchange for this coverage, employees waive the right to sue their employer for injuries (although employees may still sue in certain instances). Most states require employers with at least one employee (and up to five employees) to purchase coverage. Some states, including Texas, don't require employers to have workers' comp insurance at all.

If you're a freelancer, an IC, or a sole proprietor, you're legally self-employed and not automatically covered by workers' comp. Workers not classified as employees receive a 1099 form at the end of the tax year.

It's important to understand the legal differences between independent contractors and employees, since unscrupulous employers sometimes misclassify employees in order to avoid certain expenses.

When Workers' Comp Makes Sense for the Self-Employed

In some instances, it's beneficial for employers to hire self-employed workers who have their own coverage. When ICs not covered by workers' comp are injured in the course of performing work for a company, they may either sue for injuries or resolve the matter in arbitration. Depending on the injury risks of the particular job, the contracting company may decide that the potential cost of injury lawsuits is not worth the benefits of hiring ICs.

With this in mind, self-employed individuals who contract with companies may decide that the cost of workers' compensation insurance is worth it. This is especially true in construction and other industries with a higher risk of injury. In the construction industry, for example, general contractors are often liable for injuries incurred by any subcontractors they hire. While the general contractor's own insurance will cover this liability, they often charge a premium for any uninsured subcontractors.

But sole proprietors who neither work with companies nor hire subcontractors still may want to consider purchasing workers' comp insurance. For example, consider an independent chimney sweep who works alone. If he falls from the roof of a two-story house and breaks his leg, he won't be able to work for several weeks, at least. Even if he has medical insurance, the time away from work could be financially crippling without workers' comp coverage.

Workers' comp coverage also will help with an injured worker's rehabilitation, which may include retraining for a different type of role. If the self-employed worker described above is unable to work as a chimney sweep following an injury, this could make a huge difference.

Workers' Comp for the Self-Employed: How to Get It

If you work in a high-risk job, such as one that requires physical labor, you may want to purchase your own workers' compensation insurance policy. But even freelance writers, for instance, may be asked to carry workers' comp insurance as a condition of the contract.

Finding a policy for freelancers and other self-employed individuals may prove difficult, though. Large insurers may not see the point in selling such relatively small policies. But private firms that do offer such policies typically base the cost on the type of profession. Additionally, most states also have workers' compensation funds for those unable to buy a policy on the voluntary market (often referred to as the "insurer of last resort"). These include the State Compensation Insurance Fund in California and the Workers' Compensation Trust Fund in Massachusetts.

Questions About Workers' Comp and Self-Employment? An Attorney Can Help

If you've been injured at work and believe you may have been misclassified or have questions about coverage as a self-employed worker, you want to speak with a legal professional. Find an experienced workers' compensation attorney near you today.