Workers' compensation insurance, which if often shortened to workers' comp, is insurance that represents a compromise between employers and employees about work-related sickness and injury. Workers compensation insurance for contractors is one type of workers' comp, with some unique aspects.
What Is Workers Compensation Insurance, Anyway?
Here's how workers' comp typically works: A state makes an agreement to protect the rights of both the employer and their employees. Employees forfeit their right to directly sue their employer for work-related injury or illness, and the employer agrees to cover their employees with insurance that provides benefits as required by their state in the case of the employee's injury or illness. Many states require workers compensation insurance, and each state offers different benefits, according to the NCII
. High-risk fields such as renovations are very likely to require workers' comp, due to the increased risk of injury.
There are three scenarios where you may or may not need workers compensation for contractors: to cover yourself, to cover your employees, and to be covered by your employer. Coverage in this case refers to receiving funds for medical payments for your injuries, and even for loss of income if you're not able to work for a period of time. Let's explore when and why workers compensation for independent contractors might be necessary.
Do Contractors Need Workers Compensation Insurance For Themselves?
Workers compensation insurance for independent contractors is usually not a requirement. Sole proprietorships and partnerships are included here, unless and until your business hires employees. Even though workers compensation insurance for independent contractors is not generally required, you do have the option to cover yourself by choice. This can be a good idea, since if you get injured you can rack up serious medical bills, and workers compensation insurance for contractors can help you avoid that type of financial risk. Since rules about who's required to carry coverage evolve over time, it's always a good idea to check with your state's regulatory agency
Do Contractors Need Workers Compensation For Their Employees?
As a general rule, the answer is yes-for an independent contractor, workers compensation insurance is required when hiring employees. Here's how it works:
Let's say you own a yoga studio, and you have four teachers on staff. You have workers' compensation insurance for them and you've followed all the guidelines in your state. If one of your teachers gets injured while teaching, she can file a workers' comp claim and depending on the policy, receive medical coverage and/or coverage for her lost wages during her leave of absence. If she disagrees with your insurance provider's assessment of her benefits, she can bring her claim to workers' comp court. It would be very unlikely for you to be targeted in the case, unless an intentional act or omission on your part was the direct cause of the teacher's injury.
Does a Subcontractor Need Workers Compensation Insurance from an Independent Contractor?
Workers compensation usually applies when hiring subcontractors. Here's why:
Let's say you own a cleaning business
, and you don't have coverage for yourself because in your state, workers' compensation for contractors is not a requirement. One day, you hire an extra cleaner for a big job, and he falls down a staircase he's vacuuming. You may have asked him for proof of insurance
before you hired him, but let's say you didn't. If the cleaner is an independent contractor and doesn't have coverage for himself, he may be entitled to file a claim against you. It doesn't happen often, because the subcontractor would have to prove that the injury was directly caused by their working for you and by your negligence. But it is a possibility that would be very time-consuming and possibly expensive to resolve in court. This would also be true for a painter, a sander, or a driver. Anyone you hire to work for your company might be eligible for workers' comp benefits from your company.
Do Contractors Need Workers Compensation From Their Employers?
As a hired contractor, you are not responsible for whether or not your employer chooses to cover themselves through workers compensation. In some states, your rights to compensation are actually stronger if your employer does not take this step. This is because you are entitled to seek compensation directly from the employer, rather than the workers' comp court. This is called a "non-subscriber case" and if the injury was 99% your fault, and 1% the fault of your employer or a coworker, you are likely to win the case. This favorable judgement is the state's way of motivating business owners to cover their bases with workman's compensation insurance.
What Kind of Insurance Does an Independent Contractor Need?
It's natural to hope for the best, and to expect that you won't encounter lawsuits as a business owner. But the reality is that it does happen, and can cause a lot of unnecessary stress. That's why a well-chosen policy that includes general liability insurance
for independent contractors is a great asset, whether or not you have employees. Your insurance can save you money that you'd otherwise spend on a lawsuit or damages, and it is helps with client acquisition by showing your customers that you are a professional who takes responsibility in advance.
Being in the contracting business is an even bigger responsibility than being a typical business owner. There are many risks involved, and accidents can happen at any time. Contractors Insurance
is a great option for handymen, landscapers, carpenters, plumbers, drywallers, roofers-any field where you're working with tools and heavy equipment. Choosing the right
independent contractor insurance policy is a great strategy to protect your contracting company's finances in the case of unexpected accidents.