Do I need Workers’ Compensation Insurance?

Workers’ Compensation Insurance laws vary by state and these state requirements can be triggered with only one employee. However, aside from your state’s requirements, you may still need to invest in a workers’ comp policy. Here are four different scenarios to consider when evaluating whether you should purchase Workers’ Compensation Insurance:

1. You are a small business owner or sole proprietor without employees or contractors

If you are a sole proprietor or independent contractor and you don’t have any employees, you probably won’t need worker’s compensation coverage. However, you may be required to complete a sole proprietor workers’ compensation exemption form, get it notarized, and pay a fee. You should—as always—check the requirements of your state. We recommend you review the Department of Labor’s map with state workers’ comp agency contacts.

2. A business wants to use you as a contractor, but requires you to have workers’ compensation coverage

Some companies will not use you as a contractor if you are not covered by your own workers’ compensation insurance policy. It does not make sense for them to take on the risk of using an uninsured contractor, because if you’re injured on the job, they’ll have to pay out of pocket and can also be sued. Businesses are legally permitted to ask you to show a certificate of insurance (COI) if you want to contract with them.

3. You want to be covered by insurance in case you’re injured while working

Even if you are a sole proprietor or small business owner working alone, you might choose to buy workers’ comp coverage for yourself, simply because it just makes good business sense, especially if your work involves high-risk activities like construction. If you are injured while performing your work, you’ll be covered by your own workers’ comp policy. That way, you won’t have to try to get your personal health insurance company to cover your injury—something most health insurers won’t do. Health insurance companies also won’t provide partial reimbursement for lost wages the way many workers’ compensation policies will do.

4. You are a small business owner or sole proprietor who uses one or more contractors

If you use an independent contractor, subcontractor, or leased employee to perform work for you, even part-time, you may be required to get workers’ comp coverage (again, refer to your state’s laws). Keep in mind though that if you’re not required to have coverage and choose not to get it, you can be held liable for injuries that happen on the job. The best practice is to have coverage for yourself and anyone who works for you or to be sure they show proof of coverage for themselves.

Please note that laws change regularly, and you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner and would benefit from Human Resources support to address related HR concerns, contact us.