You might not have workers’ compensation insurance if you’re self-employed as a sole proprietor, getting paid through a form 1099 and not a W2.
A common misconception is you only need workers’ comp if you have employees. But for some types of businesses, that’s simply not the case.
For example, If you work in a high-risk industry such as the construction trades, you might need sole proprietor workers’ comp to get a license, permit or certification.
State governments regulate workers’ comp, and the rules are slightly different in each state.
Even if coverage is not required, you can benefit from voluntary workers’ compensation owners coverage if you are hurt on the job.
Continue reading to learn more about sole proprietorship insurance and worker comp requirements.
Here are some examples of when different types of self-employed or sole proprietors might need workers’ comp:
Many states require construction contractors to have workers’ compensation insurance.
It’s important to check your state’s license requirements If you are a sole proprietor working as a general contractor, electrician, plumber or other construction trade.
Learn more about license requirements for trades in different states:
Your favorite yoga instructor at your local gym? Probably a sole proprietor.
Many fitness professionals work independently and provide services at other businesses, such as gyms, fitness centers and corporate offices.
It’s common for these partnerships to require insurance, including workers’ compensation and general liability.
Also, if you are a fitness professional and recruit other people to help you, even part-time, you could be required to have workers’ comp.
Here’s an example:
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 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.
Many businesses that hire cleaning services also require workers’ comp owners coverage before they’ll sign a contract with you. That’s because your coverage could provide a layer of protection for the company you are working for if you get hurt on the job.
Buying workers’ compensation for yourself might seem odd, but it’s not 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 will likely 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 an independent contractor who doesn’t 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.
If you get hurt at work and have workers’ comp, you won’t need to use your health insurance to cover your medical costs.
Plus, your health insurance might not provide coverage for workplace injuries.
Even if your medical insurance covers your treatment expenses, it won’t cover any of your lost wages. Workers’ comp can help with that.
You can get a sole proprietor workers’ compensation exemption in some states.
A workers’ comp exemption is a declaration that you do not need coverage because you don’t employ anybody.
For example, you can only renew your California general contractor license if you have proof of coverage or a valid sole proprietor workers comp waiver.
To get a workers’ comp exemption for a 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.
While we’re talking about workers’ comp, there are types of business insurance that sole proprietors often purchase.
One of the most important for many businesses is general liability insurance.
General liability covers you in case someone other than you or an employee gets hurt or your work damages their property. It’s also called slip-and-fall or premise liability insurance because it can cover medical costs if someone gets hurt at your shop or office.
Sole proprietor insurance packages can also include:
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