Do I Need Workers' Comp Insurance if I'm Self-Employed?

Most self-employed workers do not have to buy workers’ compensation insurance. State laws typically require workers’ comp coverage only for businesses with employees, not for sole proprietors, independent contractors, or freelancers working alone.

However, you may need workers’ comp if you’re self-employed in certain situations:

• Your state requires it for your specific industry (common for construction, roofing, and other high-risk work)
• A client or general contractor requires proof of coverage as a contract condition
• You want financial protection against medical bills and lost income from work-related injuries

This article explains when self-employed workers must have coverage, when it makes financial sense to buy it voluntarily, and what alternatives exist. If you’re unsure whether coverage is right for your situation, a workers’ compensation attorney near you can help.

Is Workers’ Comp Required if You’re Self-Employed?

If you’re self-employed, a sole proprietor, or an independent contractor, you are generally not required to have workers’ compensation for yourself. Most states don’t require a single self-employed individual to carry workers’ compensation insurance. It might be something to consider if you have a sole proprietorship in a high-risk industry, such as construction, or are a small business owner and have others relying on you for support.

If you have the type of business where you occasionally hire individuals for more than a day’s work, check your state laws about employment and workers’ compensation requirements. Some states may require workers’ comp even for a single employee who works more than one day.

For companies with employees, all states except Texas require employers to have workers’ compensation. The insurance may be commercial or state-funded. In most states, even one employee can trigger the need for insurance. Some states set a higher minimum number of employees.

The definition of “employee” can exclude volunteers, family members, and corporate officers, but not always. In some states, such as Tennessee, business owners must confirm that any subcontractors they contract with carry workers’ compensation coverage.

Day laborers may not be covered, but it varies by state. In California, a “contract” for more than 52 hours or more than $100 means the worker becomes an employee. Always consult your workers’ compensation laws before hiring anyone as a sole proprietor.

Reasons for Having Workers’ Compensation Coverage

There are pros and cons for the self-employed when it comes to workers’ compensation. Your own medical insurance may not cover all work-related injuries or lost pay, especially if you are a contractor or freelancer. Self-employed workers who can’t work may have health insurance to cover medical care, but it doesn’t provide income.

Here are some reasons to consider workers’ compensation insurance.

You Work in a High-Risk Industry

If you are self-employed and work in a high-risk industry like construction, having this coverage might be a good idea. In some states, such as California, contractors in industries like asbestos abatement, tree trimming, HVAC, and roofing must carry workers’ compensation to obtain their contractor license. A general contractor will ask for a certificate of insurance before hiring a subcontractor in these fields. Not all construction work requires workers’ comp, but specialty fields may demand it.

Clients or Contracts Require It

If a client hires you as an independent contractor or freelancer, they may require you to have workers’ comp to protect their liability. It may protect you from needing to sue the company if you suffer a workplace injury.

You Can’t Afford to Lose Income if Injured

Sole proprietors may have health insurance, but that won’t help with their mortgage payments. When out with a work-related illness or injury, workers’ compensation insurance pays some of your weekly income. Your “weekly income” is calculated by totaling your previous twelve months’ income and dividing by 52. Most states have a minimum and maximum allowable income that you can receive. This provides you with some income while you recover from your injury.

Workers’ comp coverage will also help with an injured worker’s rehabilitation. This may include retraining for a different type of role. For an independent contractor who can’t afford the time to learn a new trade, this may mean the difference between recovery and a return to the office.

Workers’ Comp for Employees vs. Self-Employed

In general, workers’ compensation laws require businesses to carry workers’ compensation insurance for their employees. Employees can file a workers’ compensation claim if injured while on the job. The insurance company covers medical treatment costs and provides benefits for lost wages.

Self-employed individuals and sole proprietors aren’t covered by the workers’ comp of the business they contract with. Workers not classified as employees receive a 1099 form at the end of the tax year.

Some employers, either accidentally or deliberately, “misclassify” paid employees as independent contractors. They may do this to avoid paying taxes or overtime pay. The IRS considers misclassification tax fraud and imposes substantial penalties on the employer. The IRS and state franchise tax boards use a number of methods to determine if an employer has misclassified a worker, but some of the most common include:

• Whether the worker is free of the employer’s direction and control in where and how they do the work
• If the worker is doing tasks outside the “usual course” of the company’s normal business operations
• If the worker normally carries out those same tasks independently outside of the company’s control

The greater the control and direction the company has over where and how the worker must work, when they must be there, and what they must produce, the less likely it is that the worker is an independent contractor. If you believe you have been misclassified, you may be entitled to workers’ compensation for job-related injuries and illnesses. You can report any abuses to the state labor board.

What Does Workers’ Comp Cover for Self-Employed Workers?

All workers’ compensation policies provide the same coverage. The covered employee (you) will receive:

• Full medical expenses
• Wage replacement at 2/3rds of the worker’s average weekly income, subject to state caps, for the stated period
• Rehabilitation and retraining if needed
• Permanent disability benefits if unable to return to work
• Death benefits if the employee (you) is killed on the job or dies due to work-related injury or illness

Workers’ compensation does not provide payment for emotional trauma, punitive damages, or willful negligence. You can find additional information about workers’ compensation benefits at FindLaw’s Workers’ Compensation page.

How Much Does Workers’ Comp Cost for Self-Employed Workers?

Workers’ compensation insurance premiums are calculated by the number of employees (payroll), your industry, location, and number of previous claims. A single individual in a low-risk occupation will pay less than someone in a high-risk occupation. For example, a freelance writer can expect to pay less than a California asbestos abatement specialist.

Most quotes from small-business insurance carriers put the cost around $100 per month, averaging $54-$120 in 2023. Self-employed workers can find quotes at most small-business insurance companies, such as Progressive and ERGO Next.

Self-employed workers should consider the cost against the benefit of having a workers’ comp policy. If your job doesn’t place you in any imminent job-related risk, the additional expense of a workers’ compensation policy may not be worth it. The injury or illness must be directly job-related.

For those in a physically demanding field with an increased chance of injury, workers’ comp might be a good choice. Discuss the cost-benefit analysis with your insurance agent.

Alternatives to Workers’ Comp for Self-Employed Workers

If you don’t think workers’ comp is for you, there are some other options available for the self-employed and sole proprietors. Let’s take a closer look at a few of them.

Disability Insurance

Some states have an elective disability insurance program for individuals not covered by the state’s program for paid employees. Disability insurance is also available through private carriers. It can be expensive and may not cover all costs.

Both short- and long-term policies are available. Carriers may ask for proof you are “self-employed,” such as two years’ tax returns and business licenses.

Occupational Accident Insurance

OAI is not required by state law. This insurance was developed for gig workers and independent contractors. It provides nearly all the benefits of workers’ comp, including medical care, wages, and death benefits. OAI is often between 30% and 50% less expensive than other options.

Health Insurance and Emergency Funds

An emergency fund is money you set aside for emergencies. In theory, a health emergency fund should cover all the income you may lose if you are hospitalized or cannot work due to a job injury. You can set it up through a bank, but it requires having enough extra income for funding.

How To Get Workers’ Compensation if You’re Self-Employed

If you work in a high-risk job, it’s a good idea to consider a workers’ compensation insurance policy. To get workers’ compensation insurance, contact an insurance agent or carrier. They can provide general information about the policies they offer and help you understand the insurance cost based on your business type and the number of employees you have, if any.

Finding a policy for freelancers and other self-employed individuals may prove difficult. Large insurers may not see the point in selling such small policies. Private firms that offer such policies tend to base the cost on the type of profession. Workers’ comp benefits vary by state. Understanding your state laws and how they apply to you as a self-employed person is essential.

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

While this information provides a basic understanding, workers’ compensation laws can be complicated. If you’re considering getting personal workers’ compensation coverage, getting legal advice is a good first step.

An attorney can help answer your questions, guide you through the process, and protect your rights. They can also explain other options, like death benefits for dependents.

If you’ve been injured at work and believe you may have been misclassified, it’s time to speak with an expert in the field. FindLaw’s directory of workers’ compensation attorneys can connect you with legal help near you.