Workers’ compensation insurance for contractors could help business owners pay for medical expenses and lost wages after a workplace injury or illness. It can also help to protect your contracting business from financial losses after an accident.
Jump ahead to learn:
- Do I need Workers’ Compensation insurance for my independent contractors?
- Do I need Workers’ Compensation insurance for subcontractors?
- Do I need Workers’ Comp insurance for myself if I’m an independent contractor?
- Is Workers’ Comp required for employees?
- How much does Workers’ Comp for contractors cost?
- Why is Workers’ Comp insurance for contractors a good idea?
- What are the most common business risks for contractors?
- How NEXT helps protect contractors
Do I need Workers’ Compensation insurance for independent contractors?
Yes and no. It depends on how your workers are classified and the workers’ compensation laws in your state.
If you hire independent contractors, you don’t need to provide workers’ compensation insurance. But If you accidentally misclassify an employee as an independent contractor, you could be liable for providing workers’ comp coverage for them. And you could also be responsible for penalties for not covering them with a policy.
Some states have strict definitions about who is an employee and who is an independent contractor.
Some states define employees as workers who:
- Work under your direction and control
- Are told what to do by you
- Work only how, when and where you tell them to
- Use the tools, equipment and training that you provide
A worker might be legally considered an employee in your state even if you consider them to be a contractor.
Do I need Workers’ Compensation insurance for subcontractors?
If you or your general contractor hire subcontractors that operate as a separate business (self-employed or sole proprietor) and they carry their own workers’ comp policy, it’s not usually required for you to cover them.
But if your subcontractors don’t have their own insurance, you could be held responsible for their injury costs if they’re hurt at work on your job site. That’s why it’s common practice for general contractors to require proof of insurance before hiring a subcontractor to work.
Always double check the workers’ compensation insurance rules in your state to make sure you’re in compliance.
Do I need Workers’ Comp insurance for myself if I’m an independent contractor?
If you’re an independent contractor yourself, you’re not required to have workers’ comp coverage.
But even if it’s not required, coverage for yourself through your insurance company could give you protection over medical costs and lost wages if you suffer a work-related injury.
Is Workers’ Compensation coverage required for employees?
Yes, in almost every state. Learn what the rules are in your state.
How much does Workers’ Comp insurance cost for contractors?
The cost of workers’ compensation insurance depends on a number of factors, including:
- Your number of employees
- Your payroll expenses
- Your claims history
- How long you’ve been in business
- The state where you work
Try the NEXT workers’ comp calculator to check prices for monthly or annual costs, or get a free insurance quote to see exactly what you’ll pay for your specific business needs.
Why is Workers’ Comp insurance for contractors a good idea?
General contractors, HVAC contractors, plumbers, carpenters, electricians and other construction trades may need to show proof of their workers comp insurance, called a certificate of insurance (COI), to:
- Get a professional license
- Submit a bid and get new work
- Comply with local and state laws
Some clients won’t hire a contractor if they don’t have a workers’ comp insurance policy through an insurance provider.
What are the most common business risks for contractors?
These are the four most common exposures.
1. Dangerous accidents
If your W-2 employee suffers severe burns from exposed wiring on the job site and needs to be treated in the emergency room, workers’ compensation insurance could help cover the cost of medicare care.**
2. Lost wages
If your injured worker misses time at work while recovering from an injury, workers’ comp insurance coverage could help with their lost wages.
3. Permanent injury or death
Even if you take every safety precaution on the job, an employee could suffer permanent impairment or death. Workers’ comp could help cover long-term disability benefits, pay death benefits for burial expenses, or provide survivor benefits to an employee’s family.
4. Employer liability
If you’re accused of negligence that leads to an employee hurt on the job, they could decide to file a lawsuit against you. Workers’ comp insurance could help with the financial protection to cover your legal defense.
What are Workers’ Compensation classification codes?
Workers’ compensation class codes are three- or four-digit codes used by the insurance industry to estimate how much risk is involved for every job type and the premium (meaning the annual or monthly cost) associated with different types of work.
Jobs that are high-risk, such as electrical work or concrete construction, usually come with higher premiums. A desk job is less likely to lead to injury and usually has a lower monthly rate.
Workers’ comp classification codes are set mostly by the National Council on Compensation Insurance (NCCI), but some states use their own codes. It can be useful to learn the workers’ compensation class code for the type of construction work you do to get a better understanding of your risk and insurance premium.
