Do Independent Contractors Need Workers Comp Insurance?

Workers' compensation is the coverage employers offer to workers who injure themselves or fall ill during or because of their job. It's called 'compensation' because your sick or injured staff can use this money to recover medical costs or lost income.

It can get tricky to decide whether or not independent contractors need workers' comp. By definition, independent contractors are self-employed - NOT the employees of a company. So, states don't require independent contractors to have workers' compensation (unless they work as subcontractors).

Should independent contractors buy workers' compensation a policy?

The short answer is yes. Workers' compensation can cover expenses that your health insurance won't.

Buying workers' compensation isn't a federal requirement for independent contractors, but it can depend on the hiring firm. Your client company or general contractor may require you to buy a policy for proof of insurance in the form of a certificate of insurance. The insurance provider will issue this certificate consisting of coverage amounts and the policy's effective dates.

Ultimately, it's wise for independent contractors to have workers' compensation regardless of state or contract requirements. While health insurance may suffice for office-going folk, health insurance is rarely enough for independent contractors, especially if you offer labor-intensive services. Health insurance does not cover all your medical expenses. Nor does it help you recover the wages lost due to your inability to work because of an on-the-job injury or illness. Health insurance providers have the right to deny your claim if you get injured while working and place the responsibility on your employer instead. That means as a self-employed sole proprietor will have to absorb your losses and pay your medical bills. Your costs keep increasing even when your income goes down. A workers' compensation policy will shoulder the burden of thousands of dollars worth of medical expenses and lost income.

A few things to consider when buying a workers' compensation policy are:

1. First, make sure to classify workers as employees or independent contractors accurately.

2. If you're a general contractor, check in with your state's regulations to see if you need workers' compensation for your subcontractors.

3. Even independent contractors may need to hire employees. For example, suppose you're an independent contractor hiring part-time or seasonal employees. In that case, you'll likely need to buy workers' compensation before their first shift. But again, confirm with your state's laws.

4. You typically won't need workers ' compensation if you run a nonprofit firm with volunteers because volunteers aren't considered employees. However, volunteers working for a for-profit business may be regarded as employees and thus be eligible for workers' compensation.

Are you an independent contractor looking for workers' compensation coverage? First, visit Carriage Trade Insurance for a free workers' compensation quote.