Workers' Comp for the Self-Employed
Workers' compensation is a type of insurance. It covers the medical expenses and lost wages of an employee injured on the job. Usually, businesses are required by state law to have this type of insurance for full-time and part-time workers. The amount of coverage required generally depends on the risks in the type of work performed. For example, a roofing company will need a higher amount of coverage than an ice cream shop.
What about self-employed people or small business owners? Should they get workers' compensation coverage, too? Some independent contractors (ICs) and other self-employed workers need workers' comp coverage. This depends on several different factors, like the person's tolerance of risk.
This article provides a brief overview of workers' compensation for the self-employed.
Workers' Comp: Self-Employed vs. Employee
Workers' compensation laws generally require businesses to have workers' compensation insurance. They must have a workers' compensation policy for their employees. Employees who are injured at work can file a workers' compensation claim. The insurance company will cover the costs of their medical treatment. They will also give them benefits for their lost wages.
Generally, if you are an employee who files a W-2 tax form, your employer likely has workers' comp insurance. This covers the expenses of most work-related injuries. This includes medical bills and lost wages, with some exceptions.
There is an exchange for this coverage, as employees waive the right to sue their employer for injuries. Some employees may still sue in certain instances. Most states make employers with at least one employee buy coverage. Every state except Texas requires employers to have workers' comp insurance.
For self-employed people or business owners, it is different. If you are a freelancer, an IC, or a sole proprietor, you are legally self-employed. This means you are not automatically covered by workers' comp. Workers not classified as employees receive a 1099 form at the end of the tax year. Most state laws do not need you to have a workers' comp policy. This is because there is no employer-employee relationship.
Still, there is an exemption. If they work in a high-risk industry or have employees, they might be required to get one. The specific rules vary by state.
Understanding the legal difference between ICs and employees is essential. This is because unscrupulous employers sometimes misclassify employees. They might do this to avoid certain expenses or benefits. This can lead to significant legal and financial consequences.
When Workers' Comp Makes Sense for the Self-Employed
Does it make sense for a self-employed person to have workers' compensation coverage? Well, it depends. Some self-employed people may decide workers' compensation insurance costs are worth it. Personal injury and medical costs can be high.
Workers' comp coverage also will help with an injured worker's rehabilitation. This may include retraining for a different type of role. If the self-employed worker described above cannot work as a chimney sweeper following an injury, this could make a huge difference.
For example, if you are self-employed and work in a high-risk industry like construction, having this coverage might be a good idea. General contractors are often liable for injuries to any subcontractors they hire. They often charge a premium for uninsured subcontractors.
Additionally, many clients need proof of workers' comp coverage and will ask for proof before they do business with you. This protects them in case you get injured while working on their property. Having a workers' comp policy could offer more benefits than a standard health insurance policy. In some instances, it is beneficial for employers to hire self-employed workers with their coverage.
When independent contractors not covered by workers' comp are injured while working for a company, they may either sue for injuries or resolve the matter in arbitration. Depending on the risks, the company may decide that the potential cost of injury lawsuits is not worth the benefits of hiring ICs.
Sole proprietors who work alone may want to consider purchasing workers' comp insurance. Consider an independent chimney sweeper who works alone. If they fall from the roof of a two-story house and break their leg, they will not be able to work for several weeks, at least. Even if they have medical insurance, the time away from work could be financially crippling. This is where workers' comp can help.
Workers' Comp for the Self-Employed: How To Get It
If you work in a high-risk job, you should consider purchasing a workers' compensation insurance policy. In general, higher-risk jobs are those that require more labor. However, even freelance writers may be asked to carry workers' comp insurance as a condition of a contract.
To get workers' compensation insurance, you would contact an insurance agent or carrier. They can provide general information about the policies they offer. They can also 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. Remember that 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 are a self-employed person considering getting workers' compensation coverage, you may want to get legal advice.
An attorney can help answer your questions, guide you through the process, and protect your rights. They can also provide information about other benefits like death benefits for dependents if the worst should happen. If you have been injured at work and believe you may have been misclassified, you want to speak with a legal professional before filing an injury claim.
Find an experienced workers' compensation attorney near you today.
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Contact a qualified workers' compensation attorney to make sure your rights are protected.