Workers Comp Insurance: Who Needs It?

Whether or not you need to carry workers' compensation insurance depends on your location and the nature of your business. In most US states, workers' compensation insurance is required for businesses with one or more employees, regardless of whether they are full-time or part-time. This insurance covers medical costs and lost wages for work-related injuries and illnesses. However, self-employed individuals and independent contractors are generally exempt from these requirements.

Self-employed workers' comp requirements

Whether you need to carry workers' compensation insurance as a self-employed worker depends on where you live and the nature of your work. Workers' compensation insurance is a requirement in most states for businesses with one or more employees. However, self-employed individuals and independent contractors are generally exempt from this requirement.

In some states, such as Arizona, businesses with at least one employee, including part-time and full-time workers, are mandated to have workers' compensation insurance. On the other hand, independent contractors in Arizona are not required to have this coverage. Other states, like Connecticut, give sole proprietors the option to purchase workers' compensation insurance.

Even if your state does not require coverage, you may want to consider obtaining workers' compensation insurance to protect yourself and your business. Personal health insurance typically does not cover work-related injuries or lost income due to being unable to work. With workers' compensation insurance, you can safeguard yourself from financial distress in the event of a work-related injury or illness. It can help cover medical costs and lost wages, ensuring you can still meet your living expenses while recovering.

Additionally, some clients and government contracts may require you to have workers' compensation insurance before engaging in business with them. They may ask for proof of insurance in the form of a certificate of insurance (COI).

If you work in a high-risk industry, such as construction, your state may mandate that you obtain workers' compensation insurance even if you don't have any employees. For example, in Florida, sole proprietors and partners in the construction industry must have workers' compensation coverage to obtain permits, and they are subject to penalties if they don't comply.

To summarise, while the requirement for workers' compensation insurance varies by state, it is generally a good idea for self-employed individuals to consider obtaining this coverage to protect themselves and their business in the event of work-related injuries or illnesses.

Independent contractors and workers' comp

Independent contractors are generally not entitled to workers' compensation as they are not employees. However, this depends on the state and the nature of the work. For example, in California, specific types of contractors are required by state law to carry workers' compensation insurance, even if they don't employ anyone else. In New York, a for-profit business cannot have volunteers, and these individuals are considered employees and must be covered by workers' comp insurance.

In most cases, personal health insurance won't cover work-related mishaps or lost income from an injury on the job. Therefore, independent contractors might purchase a workers' compensation policy to cover medical bills and lost wages from a work-related injury.

Additionally, employers may be required to provide workers' compensation for independent contractors, depending on how their state defines contractors and employees. For example, in Tennessee, subcontractors and independent contractors are usually not covered by their workers' compensation policy; only employees are covered, unless the contractor is considered a Construction Services Provider.

It's important to note that workers' compensation laws vary by state, and penalties for not carrying workers' compensation coverage can be severe for businesses. As such, it's crucial to understand the specific requirements and regulations of your state.

State-specific workers' comp laws

The workers' compensation laws in the United States vary from state to state. While workers' compensation insurance is required in most states, there are differences in the specifics of these requirements. Here is an overview of the laws in a few states:

Alabama

Alabama's workers' compensation laws are codified in Alabama Code § 25-5-1 et seq. The state requires most employers to carry workers' compensation insurance, but there are some exemptions. Businesses with fewer than five employees, licensed real estate brokers, and product demonstrators are not required to carry this insurance.

Arizona

According to Arizona Revised Statutes Annotated §§23-901, et seq., workers' compensation insurance is mandated for businesses with at least one employee, whether part-time or full-time. However, independent contractors are not covered by this requirement.

Connecticut

In Connecticut, workers' compensation insurance is mandatory for businesses with employees. Sole proprietors and single-member limited liability companies have the option to purchase this insurance.

Tennessee

In Tennessee, specific employers are mandated by the Tennessee Workers' Compensation Law to provide workers' compensation insurance benefits. This includes employers in the construction business or trades with at least one employee. Coal mining companies must secure coverage if they employ at least one person. Any other employer in the state with five or more employees must also secure workers' compensation insurance.

California

In California, specific types of contractors are required by state law to carry workers' compensation insurance, even if they don't have any employees. This is to fulfil client and government contract requirements, as well as to cover themselves in case of injury.

These examples demonstrate the variability of workers' compensation laws across different states. It is important for businesses to be aware of the specific requirements and exemptions in their state to ensure compliance and provide adequate protection for their employees.

Workers' comp for subcontractors

Workers' compensation insurance is required in most states for businesses with one or more employees, whether they are full-time or part-time. This insurance covers medical costs and lost wages for work-related injuries and illnesses. While sole proprietors and independent contractors are usually exempt from coverage requirements, there are some instances where they might need to purchase a policy. For example, in California, specific types of contractors are mandated by state law to carry this insurance even if they don't employ anyone.

If you are a subcontractor, you are most likely not legally required to get a workers' compensation policy. However, you may need to buy one for yourself to get hired for certain jobs. Some employers may require it in your contract or ask for a Certificate of Insurance (COI) before you start working.

If you are hiring a subcontractor, you will need to provide them with coverage or ensure that they have their own policy. If a subcontractor doesn't have their own workers' compensation insurance, they are covered under your policy, and you will be charged for their payroll. To avoid this, you can ask them to provide a COI before they start working.

It's important to note that the criteria for classifying someone as an independent contractor versus an employee may differ between your state and the IRS. Even if subcontractors qualify as independent contractors for tax purposes, they might still be considered employees by state standards. Therefore, it's crucial to verify their classification under state law to determine your responsibility for providing coverage.

Workers' comp and personal health insurance

Workers' compensation insurance and personal health insurance are two distinct types of coverage that offer different benefits to employees. While workers' comp is a type of business insurance that covers workplace injuries and illnesses, personal health insurance is typically used for non-work-related medical issues.

Workers' compensation insurance provides financial protection for employees who suffer work-related injuries or illnesses. It covers medical treatment, lost wages during recovery, and disability benefits. In most states, businesses with employees are required to have workers' compensation insurance. This insurance also protects employers from the financial burden of employee injuries and ensures fair competition among businesses. However, it's important to note that workers' compensation may not cover all types of work-related injuries or illnesses, and the specific requirements and regulations vary from state to state.

On the other hand, personal health insurance is typically used for non-work-related medical expenses. It can be provided by an employer as part of a benefits package, or individuals can purchase private health insurance on their own. Employers who offer health insurance often cover a portion of the premium cost, and these contributions are not taxed as income. While health insurance is not federally mandated for individuals in the US, some states do require residents to have health insurance or pay a tax penalty.

It's worth noting that there may be some overlap between the two types of coverage. For example, personal health insurance may exclude coverage for work-related injuries, but this can vary depending on the insurance provider and the state. Additionally, independent contractors and self-employed individuals may have different considerations when deciding between workers' comp and personal health insurance. In some cases, they may not be legally required to carry workers' comp for themselves, but it could still provide valuable protection in the event of a work-related injury.

Ultimately, it is important for business owners and employees to understand the differences between workers' compensation insurance and personal health insurance to ensure they have the necessary coverage in place.

Frequently asked questions