Is Workers' Compensation Insurance Necessary for the Self-Employed?

Workers' compensation insurance covers medical expenses and lost wages if you get injured or become ill due to work-related activities. Even if you’re self-employed, having this insurance can be instrumental for protecting yourself financially in case of unexpected incidents.

Although workers’ compensation insurance for self-employed individuals is not often required by law, having coverage can give you peace of mind. Not only do you get financial protection, it can also improve your business’s credibility.

Regulations on workers’ compensation insurance vary from state to state. Typically, if you are self-employed and have no employees, you’re exempt from getting workers’ compensation.

However, if you have employees working for you — even if your status is self-employed — obtaining coverage may be necessary, depending on your location. Some states may have minimum employee thresholds that trigger workers’ compensation insurance requirements, while others may mandate coverage regardless of the number of employees.

For example:

• Alabama: You are legally required to provide workers' compensation coverage if you have five or more employees in Alabama.
• Idaho: Idaho requires coverage if you have at least one employee, whether full-time, part-time, seasonal or occasional.
• Florida: The state of Florida requires coverage if you have four or more employees, including business owners who are corporate officers.

Failure to comply with workers' compensation regulations in these states can result in penalties, fines and increased liability for employee injuries.

Independent contractors are considered self-employed individuals who offer services to businesses or individuals. However, while all independent contractors are self-employed, not all self-employed individuals can be considered independent contractors.

While self-employed business owners may sell their products or services directly to consumers, independent contractors typically work with different clients on a project-by-project or contractual basis. For instance, an independent contractor may work as a consultant for six months with a law firm, while a self-employed business owner may sell cakes to end consumers.

Because independent contractors are not considered employees, the businesses you offer services to are not required to provide you with workers’ compensation insurance.

However, it's important to note that there are varying state regulations regarding workers' compensation insurance for independent contractors. Some states may require certain types of independent contractors, such as those working in construction, to carry workers' compensation insurance even if they have no employees. Most states, however, do not require any workers' comp coverage for independent contractors at all.

Even if workers' compensation insurance is not legally required, some companies may still require you to carry your own insurance as a condition of doing business. In this case, you are responsible for obtaining your own policy.

The real-world scenarios below illustrate where workers' compensation insurance for self-employed workers can provide support.

• As a freelance writer: While working from a home office, you suffer from repetitive strain injury. Workers' compensation can cover medical expenses and lost wages.
• As an independent contractor: A construction contractor injures their hand on a job site. Workers' comp can cover treatment costs and rehabilitation.
• As a self-employed electrician: You suffer an electrical burn while on the job. Workers' comp coverage can help cover the costs of your medical treatment and recovery time costs.
• As a self-employed plumber: When you slip and fall while fixing a pipe at a client's house, this type of insurance can cover your medical bills and lost income.
• As a self-employed photographer: You trip over equipment during a photo shoot and injure your ankle. Workers' compensation can cover the costs of treatment and recovery.

These examples highlight how this insurance can cover medical expenses, lost wages and rehabilitation costs.

Workers' compensation typically covers part-time employees. State laws generally require employers to provide coverage for part-time employees just as they do for full-time employees. This ensures that all employees are protected in case of work-related injuries or illnesses.

Coverage for part-time employees helps maintain compliance with state regulations and provides financial protection for your business and employees. It also fosters a safer work environment by ensuring all employees have access to necessary medical care and wage replacement benefits in the event of a work-related injury.

Even if it’s not legally required, getting workers’ comp insurance as a self-employed individual can be beneficial for many reasons. Aside from protecting yourself financially, it can also lead to more business opportunities. Understanding the benefits of purchasing workers’ comp insurance while self-employed can help you make better decisions for your business and career.

If you’re not legally required to have workers’ compensation insurance and don’t want to get coverage, you may need to file a workers’ compensation exemption form. This certifies that you are exempt from getting coverage.

The steps to filing an exemption form can vary from state to state, but you can typically find the process and requirements on your state’s workers’ compensation board website. Look for a form titled "Notice of Election to Be Exempt," "Certificate of Attestation for Exemption," or similar on your state office's website. Once you’ve found it, provide your business details and pay any fees required. Once you’ve completed the requirements, you can submit this form online or mail a physical copy, depending on your state’s procedures.

Once your application is approved, your state's workers' compensation office will issue a certificate of exemption. It's wise to keep a copy on file for business transactions and other dealings.