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What is Workers’ Compensation Insurance for the Self-Employed ?

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This insurance policy is what you need to buy if you’re self-employed, specifically to keep your business afloat in case of an injury that keeps you away from your work/job. The insurance helps you pay lost wages and medical bills related to your injury, so you are covered and can recuperate without worry.

Workers’ Compensation: Self-Employed vs. Employee

Insurance is simpler for full-time employees in a company. Generally, self-employed people need to buy their own insurance. The self-employed workers’ comp is the specific insurance for these individuals.

Let’s hop into the details as to how workers’ comp works, how it is different for employees vs. self-employed individuals and, what are the problems that an employer can encounter with employee misclassification.

What is the true benefit of Workers’ Compensation?

It is a government-mandated program to suitably compensate employees through various benefits when they are injured during work or become ill due to the nature of the job. Though this benefit varies from state to state, the key benefit to employers is mainly that employees waive the right to sue the employer for damages. Workers’ Compensation is different from other employee benefits and the compensation may include medical expense coverage and partial salary repayment.

This policy is extended to full-time employees usually and the employer doesn’t necessarily have to include freelancers and contractors under this scheme. Hence, the ineligibility and exclusion of the “gig economy” participants (like part-time employees, freelancers, and contractors) from the policy is becoming a large issue in America where an estimated 34 million work part-time, or are the occasional contractor.

Do the self-employed individual and independent contractor fit into this policy?

Some states mandate that employers have to include independent contractors in the policy. If the state requires 1099 employees to be covered under workers’ compensation then, the employer will have to provide coverage for independent contractors. Self-employed or independent contractors do not have their pay withheld and therefore are expected to pay self-employment tax.

Therefore, it’s simple; contractors or freelancers have to pay for their own insurance which is the ‘workers’ comp insurance for self-employed’, and should not rely on the employer to provide it.

What’s more, a few companies that hire freelancers and contractors expect the individual to have an independent contractor workers’ comp policy before taking on the job. Another common trouble with compensation is employee misclassification which causes issues with the government during taxes.

So would you know if you are a freelancer or an employee? You may think you are a freelancer but according to the government, you may not be. It’s important to know whether you are truly an “independent” skilled worker and how much of your work schedule is controlled by the employer as the employee classification is important for Workers’ Comp.

You need to be compensated by your employer (you are eligible for Workers’ Comp) if you are considered an employee according to the government.

If you are not employed full-time and considered a freelancer by the government, you would have to make your own arrangements for Workers’ Comp and cannot hold the employer responsible for providing compensation for injury or illness at work.

When do Independent Contractors Need Workers’ Comp?

For contractors, the need to purchase Workers’ Comp or not isn’t always clear-cut and can cause some confusion. Some states mandate that contractors have an Independent Contractor Workers’ Comp even if they work by themselves while others allow contractors to be exempt from this mandate.

However, there are a few instances where Contractors would require Workers’ Comp

  1. In the instance of having full-time staff to assist you in your work, you would need to provide Workers’ Comp
  2. Certain clients require that you have coverage at the contractual stage. Generally, having coverage makes contractors more favorable to be chosen for hire
  3. If you need a contractor’s license some states require you to have Workers’ Compensation, with a few exceptions. Working without having a license and no Workers’ Comp coverage is considered to be illegal in some states
  4. For labor-intensive jobs, having Independent Contractor Workers’ Comp can be exceptionally useful in case of any injury
  5. In a few states, you may need to show proof of Workers’ Comp coverage where your business is located, even if you’re an out-of-state licensed contractor

For individuals who are self-employed as contractors, freelancers, or work part-time for various roles, being insured matters, no matter your line of work.


Self-Employed Workers’ Compensation: Insurance Coverage for the Self-employed and Individual Contractors

Identifying workers is important and companies or employers need to first classify a contractor and an employee. How should one know? The laws on classification vary from state to state but traditionally, the simple way to classify is with the tax forms i.e. ones who receive a W-2 tax form are considered employees and those who receive a 1099 form are contractors.

Now that we know what constitutes a self-employed individual, let’s dive into the professions that benefit from Workers’ comp for the self-employed.

Here are some of the top professions that are covered under the self-employed Workers’ Comp Insurance

  • Photographers
  • Tax Preparers
  • Software developers
  • Web developers
  • Painters
  • Lawn care
  • Landscape design
  • Management Consultants
  • Marketing Consultants
  • IT Consultants
  • Life and Health Insurance Agents
  • General Contractors
  • Handyman Services
  • House Cleaning
  • Janitorial services

Apart from these popular services, there are more that fall under self-employment like Freelance writing and copywriting, Graphic designing, Online teaching/tutoring, Child care service, Delivery service, Event or party planning, Stock trading, Life coaching, Physiotherapy, Radiologist, Interior designing, Food catering, Florist, Nutritionist, Mobile app development, Digital marketing, Candle making, Auditing, Travel experience curator, Pet daycare, Repairing home electronics, Virtual assistant, Web designing, Podcasting, Reselling on e-commerce websites, Personal and local business consulting, Online news correspondent, Real estate agents, and brokers, Lawyers, etc.

What Does Self Employed Workers’ Compensation Cover?

The most often asked question is do self-employed people need Workers’ Compensation. The question arises due to some individuals having health insurance and therefore not seeking the need for additional security. But, other types of insurance policies do not give the individual coverage if there is an injury at work or an occupational illness.

On the other hand, Self-employed workers’ comp insurance covers several risks that occur at the workplace. The risks are classified below:

  1. Medical expenses for injury and illness caused due to work-related tasks or incidents
  2. Lost wages
  3. Rehabilitation services and retraining programs
  4. Repetitive stress injuries
  5. Occupational illnesses
  6. Workplace violence
  7. Mental health conditions
  8. Death benefits for workers’ dependents
  9. Protection from employee lawsuits (for lost wages and medical costs)
  10. Disability

The most important benefit of Self Employed Workers’ Comp is the medical coverage because it covers:

  1. Full payment for medical costs incurred due to an injury including doctor visits, diagnostic tests, lab tests prescription medication, and rehabilitative therapies.
  2. The full cost coverage can also include out-of-pocket costs of the medical treatment to be reimbursed, for example, cost of appointments, travel ‘to and fro’ to the doctor’s office/hospital, public transportation cost, and parking fees.

The other Workers’ Comp Benefits include:

  1. Wage Replacement Benefits: This is especially beneficial for both temporary injuries and in the instance that an individual is unable to work completely. Employees with temporary injuries are eligible for a weekly income replacement whereas any injury that’s not temporary calls for  compensation of 66.67% of AWW (Average Weekly Wage)
  2. Disability Benefits: The Workers’ Comp covers employees who sustain Permanent and/or Partial Disability where the amount the worker is paid is dependent on the extent of the injury.

Now that we’ve seen what entails a self-employed workers’ comp, let’s go over what happens when you as a self-employed contractor bring on a sub-contractor to help you with a job? Do the rules remain the same for compensation? Let’s see.

If you hire subcontractors, do you need self-employed workers’ compensation?

If you’re a contractor with no employees but hire only sub-contractors on a freelance basis, you may still be required to have workers’ comp. The law differs from state to state for employee classification and some states require contractors to carry self-employed workers’ compensation insurance even if the sub-contractors have their own workers’ comp policy.

Aside from rules and the law, since the contractors become the employer for a sub-contractor, they need to protect their business in case of any injury for the sub-contractor and hence the natural risk aversion solution is to carry workers’ comp coverage.

Workers’ comp Insurance for self-employed costs

When it comes to the premium employers pay for Workers’ Comp, certain factors determine the costs for this insurance.

The key factors would be the industry of the business, payroll, and claims history. Here’s what determines the cost of the premium:

  1. Industry – Any industry that is considered riskier than other businesses; for example, the construction business would have a higher premium.
  2. Payroll – The annual workers’ compensation insurance cost is calculated based on the company’s annual payroll.
  3. Claims History – The company’s history of claims is assessed and both the number of claims in the past as well as the seriousness of the claims would be considered to determine the cost of the premium.
  4. State Laws – Each state has its laws for insurance and these laws affect the cost of the premium for Workers’ Comp.

We’ve seen how this policy coverage, cost, and laws vary from state to state and the states also have penalties in place of non-compliance of any business that does not insure or misclassify employees.

Penalties for failing to provide Workers’ Comp

Let’s take a look at some of the penalties imposed by states or regions with regards to workers’ compensation. According to Insureon (the marketplace for small business insurance), the penalties for a few states are as below:

  1. New Jersey – failure to carry workers’ comp coverage is a criminal offense punishable by a fine of $10,000 or imprisonment for up to 18 months.
  2. California – The penalty is similar to that of New Jersey but with fines that can reach up to $100,000.
  3. Illinois – failure to carry workers’ comp insurance carries a misdemeanor charge, but willfully failing to obtain insurance is a felony.
  4. Pennsylvania – intentional noncompliance is a felony of the third degree. It can result in a fine of $15,000 and up to seven years in jail.

Some states also provide employee workers’ comp exemptions. As with all laws, the exemption laws also vary from state to state. For example, in Delaware, although most employees must be covered by Workers’ compensation insurance, some professionals are exempt from the policy. They include independent contractors, people with government jobs, some real estate sales professionals, and low-earning agricultural or domestic workers.

Self-employed Workers’ Comp – is there an opt-out?

So how do self-employed workers opt-out or exempt themselves from Workers’ Compensation Insurance? There are a few instances where self-employed individuals may not require workers’ comp.

  1. Independent contractors may, in a few states, be required to be covered for Workers’ Comp by the business owner. When the independent contractor provides services to other businesses, the owner can ask to waive the requirement for Workers’ Comp
  2. Workers like agricultural workers or real estate agents who are sole proprietors, who work for only a nominal number of days in a year or earn little are exempt from Workers’ Comp due to the nature of their job
  3. Some business owners can be exempt from Workers’ Comp as some states allow them to opt out of it

Here are the types of owners who can legally opt out of Workers’ Comp coverage:

  • Sole proprietors
  • Partners
  • Members of limited liability companies (LLCs)
  • Corporate officers who own more than a certain percentage of company stock

To be exempt, individuals first have to qualify for a workers’ comp exemption by paying processing fees and completing a form with the state’s regulatory agency.

As we’ve seen thus far, business owners or employers can easily get into trouble for misclassifying employees or get confused with all of the laws of insurance policies for employees.

How Multiplier can Provide Help with Offering Independent Contractors Workers’ Comp?

An Employee of Record (EOR) platform not only helps employers onboard their employees with ease but also helps them get a lot more done easily. Take a look at Multiplier, our EOR Platform that’s helping international businesses hire talent across the globe, without having to open a local business entity.

One of the key reasons why businesses choose Multiplier is because the platform takes care of various ‘Compliances’. For a business owner, compliances are a headache because the law varies from state to state and is different for each country. To remove the hassles of adhering to compliances, Multiplier is tuning out the confusion associated with employee processes and making the procedure seamless in terms of hiring, onboarding, payroll provision, benefits, and compensation insurance “compliantly”.

You’ve now seen the word compliance used many times, but business owners know better than anyone why it is a big deal when it comes to Workers’ Comp Insurance. Multiplier lets businesses onboard independent contractors and gives you everything you need to make your hires successful from onboarding to payroll to payslips generation, expenses, insurance, benefits, and more.Head on over to our website for more details and you can also request a free demo from the experts to view the platform in action.

Hiring and onboarding using Multiplier ensures you hire remote talent with locally compliant, fool-proof job contracts, offer emphatic benefits and disburse salaries accurately with absolutely nil errors in payrolls.

Hiring and onboarding using Multiplier ensures you hire remote talent with locally compliant, fool-proof job contracts, offer emphatic benefits and disburse salaries accurately with absolutely nil errors in payrolls.​

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