Workers’ compensation for the self-employed and independent contractors

People who work for themselves and don't have employees are generally not required by law to purchase workers' compensation insurance. However, self-employed individuals and independent contractors might purchase a policy to:

If you hire subcontractors, even if they work part-time, you may be required to purchase workers' comp insurance coverage depending on how the laws in your state classify when workers are considered employees. Even if subcontractors have their own workers' comp policy, your state might still require you to provide workers' comp coverage for them.

Workers' comp may also be required for high-risk construction jobs like roofing, whether or not you hire employees.

No, which is why it can often be confusing for self-employed workers, independent contractors, and small business owners with no employees to know when they might be required to purchase workers' compensation insurance.

For example, the state of Texas generally doesn't mandate that anyone purchase workers' comp insurance, but New York requires coverage as soon as a business hires one employee. In California, specific types of contractors are required by state law to carry this policy, even if they don’t employ anyone else. It's important to review the workers' compensation laws in your state to make sure you are in compliance.

As many independent contractors are normally exempt from workers' comp requirements in several states, a workers' comp ghost policy may be an effective alternative option. It can help self-employed individuals provide a certificate of insurance (COI) without having to pay for a full workers’ compensation policy. This is a policy in name only and provides no coverage, which is why it's not permitted in every state.

If you're not required to buy workers' comp, another cost-effective option is occupational accident insurance (OAI). This is a voluntary policy that provides similar coverage to workers' comp at a lower price.

The laws determining if a worker is classified as a contractor or an employee can be confusing, open to interpretation, and can vary from state to state. Traditionally, workers who receive a W-2 tax form are considered employees, and those who receive a 1099 form are independent contractors. However, you might be required to provide workers' compensation for 1099 contractors depending on the laws in your state.

If a contractor working for you is injured and your state determines the worker should have been classified as an employee, you could face fines or even jail time for not carrying a workers' compensation policy. The penalties vary by state.

Consider talking with a business attorney to make sure your workers are not misclassified, and that you have the appropriate workers' compensation coverage.

In addition to workers' compensation insurance, there are a few other business insurance policies that independent contractors and sole proprietors may need:

Every state requires commercial auto insurance for vehicles that are registered to a business, or the ability to compensate someone in case of an auto accident. In the event of an accident, an independent contractor's commercial auto policy would cover the legal bills, medical expenses, and property damage.

For the self-employed and independent contractors, your personal auto insurance might not cover you when you drive your own vehicle for business use. If you drive your personal vehicle for work, you should consider hired and non-owned auto insurance (HNOA) to make sure you're protected.

A client injury or property damage at your workplace could result in an expensive lawsuit. If you operate your business out of your home, it’s unlikely that your renter’s or homeowner’s insurance would cover these accidents.

General liability insurance gives you financial protection from such third-party claims.

Commercial property insurance offers financial protection for your workspace and its business contents, and is often required by landlords to sign a lease. If you own or rent a workspace, or if you have expensive equipment, inventory, and other business assets, commercial property insurance would help pay for the repair or replacement if your business property is stolen, damaged, or destroyed.

If you intend to buy both general liability and commercial property coverage, you can reduce your insurance costs by bundling them into a business owner’s policy (BOP). It combines both coverages under one policy, and usually has lower insurance premiums than buying each policy separately.

Errors and omissions insurance, also known as E&O or professional liability insurance, can offset the cost of a lawsuit if a dissatisfied client sues you over your work. Those who offer professional advice and services buy this coverage in case a client accuses them of making a mistake, missing a deadline, or failing to deliver on a contract.

Contractor’s tools and equipment insurance is designed for construction and installation contractors that work at different job sites. It protects movable tools and equipment wherever they are stored and pays for repair or replacement if they are lost, damaged, or stolen.

Compare quotes from multiple top-rated U.S. insurance companies with Insureon’s free online application. Find quotes for workers' compensation insurance for the self-employed and independent contractors, as well as other policies to protect your business.