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Small Business

Does a sole proprietor need a Workers’ Compensation insurance policy?

Matt Crawford image
By Matt Crawford
Oct 3, 2020 min read

If you’re self-employed as a sole proprietor, getting paid through a form-1099 and not a W2, you probably don’t have workers’ compensation insurance. Although this is usually fine, sometimes sole proprietors need workers’ compensation. 

State governments regulate workers’ comp, and the rules are slightly different in each state. Generally, if you’re a sole proprietor and you don’t have anyone else working for you, you probably are not required to have workers’ compensation insurance. 

However, if you work in a high-risk industry, such as construction trades, you might need coverage to get a license, permit or certification. If you hire people to work for you — even if they are working part-time or as independent contractors — you will probably need workers’ comp. 

Workers’ Comp insurance for self-employed independent contractors

Here are some examples of when different types of self-employed independent contractors might need workers’ comp:

General contractors 

Independent general contractors might be required to have workers’ compensation to get a contractor license in their state. Many states and local governments require this for work on projects that cost more than a few thousand dollars.

It is also not uncommon for clients to ask contractors to have coverage when submitting a bid for a project. This is typically shared with a certificate of insurane.

Plumbers

You’re a plumber working on your own, but when you land a big job, your nephew, who is also training to be a plumber, works with you. If he gets hurt installing a U-bend, you might have to pay his medical costs, which could be pretty high. Workers’ comp would help pay for expenses, and it could be required in your state.

Learn more about plumbers insurance.

Yoga teachers

Your outdoor yoga practice is taking off, so you expand your classes to include more students. You have a friend who is also a yoga teacher, and you ask her to teach with you so you can give individual attention to your students. 

You think she’s an independent contractor who’s working alongside you, not an employee who needs workers’ comp. But some states would see her as your employee and require you to have workers’ comp.

Check with your state’s workers’ compensation agency to make sure you comply with laws regarding workers’ comp for sole proprietors.

Learn more about yoga teacher insurance.

Do I need Workers Compensation insurance for myself?

It might seem odd to buy workers’ compensation for yourself, but it’s not that uncommon. Many companies will only hire you as an independent contractor if you have workers’ comp. This is because if you get hurt while doing a job for them, you could potentially sue the company for your medical costs. 

Businesses know that the courts are likely to order them to pay, even though you’re an independent contractor — unless they buy workers’ comp for you or you have sole proprietor workers’ compensation for yourself.

It’s legal for a company to refuse to hire you as an independent contractor unless you have workers’ comp.

Most companies don’t want to buy workers’ comp for sole proprietors they hire to power wash the floors or do a company photoshoot, for example, but they also don’t want to have to pay your medical costs if you get hurt. That’s why they’ll ask you to provide a certificate of insurance with active coverage before they sign a contract with you.

There are also benefits to buying workers’ comp for yourself 

If you get hurt at work and have workers’ comp, you won’t need to use your personal health insurance to cover your medical costs. That can save you time arguing with your insurance company for reimbursement for every expense.

Even if you’re medical insurance provides coverage for your treatment expenses, it won’t cover any of your lost wages. Workers’ comp can help with that.

What is the sole proprietor Workers’ Comp exemption?

In some states, you can get a sole proprietor workers’ compensation exemption.

A workers’ comp exemption is a declaration that you do not need coverage because you don’t employ anybody. In California, for example, you can’t get your contractors’ license renewed unless you have proof of paying workers’ comp, or a valid sole proprietor workers comp waiver.

To get a workers’ comp exemption for sole proprietorship, you’ll have to complete the right form for your state, take it to be notarized and usually pay a small fee. 

You won’t have to pay for workers’ comp coverage, but you might have to pay out of pocket to cover your expenses if you get hurt at work.

Other insurance policies sole proprietors should consider

While we’re talking about workers’ comp, there are types of business insurance that sole proprietors often purchase. The most important is general liability insurance

General liability covers you in case someone other than you or an employee gets hurt or their property is damaged through your work. It’s also called slip-and-fall insurance because it covers medical costs if someone gets hurt at your shop or office. 

Sole proprietor insurance packages can also include:

How Next Insurance helps sole proprietors

We’re 100% dedicated to helping self-employed professionals and small business owners find the right insurance at affordable prices. Since we only help business owners like you, we can create a customized insurance package that is often cheaper than other options.

All of our services are online, so you can get an instant quote, review options and purchase coverage in less than 10 minutes. You’ll have immediate 24/7 access to your certificate of insurance as soon as you buy your insurance.

Get an instant quote today to get started.

Our team of U.S-based insurance advisors is standing by to help if you have any questions.

Matt Crawford image
By Matt Crawford
Matt Crawford is Associate Content Director at Next Insurance and a small business insurance specialist. He has worked throughout his career to help small business owners grow and protect their businesses.
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