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Workers’ Compensation When You Are Self Employed

You might ask yourself, do I need Self Employed Workers’ Compensation policy if I run my own business and have no employees? This article will explain what is covered, what is not covered, the cost and the pros and cons of obtaining coverage.

It will also give you the knowledge, to ask your insurance agent the right questions so you can get a policy that will fulfill your specific needs. So keep reading and become a knowledgeable business owner.

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What Is Self Employed Workers’ Compensation?

The first and most basic question that should be asked is What is Self Employed Workers’ Compensation? At its simplest level, Workers Compensation protects employees from injuries or illness that arise from their job related duties.

Some examples are a painter that falls off a ladder and breaks her leg or a worker in a manufacturing facility that is exposed to toxic substances and develops cancer.

In almost every State if you have employees you are required by law to have Workers’ Compensation Insurance to cover your employees.

Workers who are injured and have Workers' Compensation Insurance
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Pro Tip

The question that comes up quite often is, “I don’t have any employees, do I need to get Workers Compensation Insurance?”. The answer is that in most States if you are self employed you are not required to have Workers’ Compensation insurance. Some States may require you to file an affidavit. Two examples are Illinois, where you can elect to have coverage and Kentucky, where you have to sign an affidavit to opt out of coverage.

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What Does Workers’ Compensation Cover When You Are Self Employed?

The coverage you obtain under the policy is the same as if you purchased coverage for an employee. There is no difference in the coverage afforded.

State law determines how and what benefits are available to an injured worker. Most State Workers’ Compensation laws typically provide the following types of benefits:

  • Medical Coverage

    Includes doctor visits, hospital care, prescription medications, physical therapy, and any other medical treatments deemed necessary.
  • Disability Income

    Provides a replacement of income lost when workers are unable to work due to an on-the-job injury. The amount and duration of benefits depend on whether the disability is temporary or permanent, and partial or total. This is usually a percentage of wages and is generally around 70% of the injured workers’ weekly wages in most States.
  • Job Rehabilitation or Retraining

    This provides support and training for workers who cannot return to their prior occupation to learn a new skill based on their current capabilities.
  • Death Benefits

    If a worker is killed on the job their spouse and minor children are entitled to payment of a death benefit.

To sum it up all States give injured workers similar types of benefits, the amounts they pay varies greatly from State to State.

Workers Comp vs Disability Insurance

One thing that is often overlooked when you are self employed is how will you earn a living if you become injured, sick or disabled. You will in most cases have no other source of income.

You have maybe looked into purchasing disability insurance in case of such a situation. You would have discovered that these premiums are outrageously expensive.

The cost of Workers’ Compensation is significantly lower than disability insurance but it contains most of the same benefits for lost wages, also pay medical bills and rehabilitation costs as well.

The important caveat is that your injury or illness must be caused by a work related incident for Workers’ Compensation to cover you.

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What Does Workers’ Compensation Insurance Cost?

Self Employed Workers’ Compensation Insurance is unlike other types of business insurance in that it is regulated differently by every State. It also means the cost of this coverage varies significantly from one state to another. The main factors in determining the costs are:

State law determines how and what benefits are available to an injured worker. Most State Workers’ Compensation laws typically provide the following types of benefits:

  • Type of business:

    The National Council on Compensation Insurance oversees Workers’ Compensation issues in much of the country. The NCCI has developed a system of class codes to categorize the types of work people do.

    Currently, there are more than 700 codes. Each class code identifies a specific type of work. The higher risk a profession has, the more it costs to buy Worker’s Compensation for an employee in that profession.

    It stands to reason that it would cost more to cover an iron worker than someone that strictly works in the office as a receptionist.

  • Your Location:

    The cost for Worker’s Compensation Insurance varies greatly from State to State.

    For example in Indiana you will pay about $14 per $100 of payroll. In New York you can pay as much or more than your payroll for coverage. So in New York for example if you had $100,000 in payroll your insurance cost would be around $80,000.

    As a general rule the more liberal the State the more you will pay.

  • Age of your business:

    New companies will generally have to go into their State’s assigned risk plan often called the “Pool”.

    The Assigned Risk Plan was formed by individual states to make sure employers can obtain Workers’ Compensation Insurance. As Worker’s Compensation Insurance is required by law in most States, insurance companies that write business in that State are required to accept a certain number of “Pool” companies.

    Assigned Risk Plan rates are generally higher than those for the same classification codes in the standard market. Assigned Risk Plans are generally the market of last resort for many States.

    Some States administer their own programs while NCCI, the National Council on Compensation Insurance administers others.

  • Safety Record or Loss History:

    Workers’ Compensation Insurance cost is also determined by your previous loss history. This is called your experience modification (EM). It is a numerical representation of your businesses claims history and safety record as compared to other businesses in the same class code. The average company is assigned an EM of 1, if you have a poor safety and claims history your EM will be greater than 1. If you have a good safety and claims history your EM will be less than 1. This can greatly affect the amount you pay in premium.

How Your Lost Record Affect Your Workers Comp Cost

This may sound complicated but it is actually very simple as the 3 examples below.

The States rate for coverage is $20 per $100 of payroll.

Lost History Payroll Coverage Multiplied by EM Total
Safely $100,000 $20 per $100 of payroll= $20,000 EM of .75 $15,000
Average $100,000 $20 per $100 of payroll= $20,000 EM of 1 $20,000
Reckless $100,000 $20 per $100 of payroll= $20,000 EM of 2 $40,000

All these policies will have the same coverage. So you can clearly see that a safety conscious business will pay off in the end. With Reckless paying $25,000 a year more than Safely. If your payroll is large this can amount to huge differences.

    Here are some examples of cost versus risk:

  • Sales person: low risk. Average around $0.28 per $100 worth of payroll for this category.
  • Contractor: Artisan Contractor. Average around $12 per $100 worth of payroll for this category.
  • Contractor High Risk: Such as Roofing Contractors. Average around $35 per $100 of payroll for this category.
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Review this at least once a year

Your experience modification (EM) should be correct. Oftentimes it is not. Even a small error in your EM could cost you thousands. Another area to review is the class codes assigned to your workers.

If your agent has never suggested this it might be time to find a new agent.

ContractorsLiability.com is here to help with all your insurance coverage needs, including specialized plans for Cheap Workers Compensation for self employed insurance. For more information, contact us via web or call us at (866) 225-1950 for a quote in five minutes.

How Much Is Workers’ Compensation Insurance For A Small Business?

The first question that every small business owner has when it comes to obtaining Workers’ Compensation Insurance is how much is it going to cost me?

Workers’ Compensation Insurance rates are determined by the State, in most instances. In most businesses there are different types of workers. If you run a roofing business you would probably have office personnel, salespeople/estimators and workers that install the roofs. It is clear to see that the person answering the phone has a much less chance of injury on the job then one of the guys installing the roofs. As a result you must make sure all your payroll is assigned to the correct classification.

Each worker classification, that is the type of work, is assigned a rate per $100 of payroll, and then the rate is a multiple of that. Here are some examples from the National Council on Compensation Insurance (NCCI) rating pages that show the significant differences between business classifications:

DescriptionRate Per $100Amount of PayrollAnnual Cost
Retail Store$22.00$30,000.00$600.00

There is usually an additional annual per policy administration fee charged by the insurer. This amount is limited by State law with the amount charged determined by the insurance carrier issuing the policy.

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Frequently Asked Questions

The simple answer to this is no in almost all cases. You need to check with the State you do business in as they may require you to affirmatively acknowledge your wish not to have coverage.

There is a situation that often arises if you are contracted to do a job for a large General Contractor or company. They will often ask you to provide a certificate of insurance. One of the requirements is usually showing proof of Workers’ Compensation Insurance.

You can purchase a “If Any” policy for around $1,200 a year. This allows you to show workers compensation on your certificate of insurance. It is important to recognize that this policy offers you no coverage if you are injured on the job. It only satisfies the GC’s requirement to his insurer that any subcontractors they hire have coverage.

If you do not have any employees you do not need coverage. You need to be aware if you are classifying people as subcontractors, they need to actually be subcontractors. There is a lot of shenanigans going on in classifying people as 1099 subcontractors vs W-2 Employees.

If one of these “subcontractors” is injured on the job you can pretty much guarantee that they will get a lawyer to claim that they were actually an employee. Remember if it walks like a duck and quacks like a duck, the court will find it is a duck, no matter your assertion otherwise.

It does not matter how many days or hours per week an employee works. Any employee, whether she is full-time, part-time, or seasonal, is eligible to receive workers’ compensation benefits after a workplace injury. The injury must occur while performing required employment duties. The injury also must be serious enough to require professional medical attention.

In most cases if you are required to have coverage you can be fined significant amounts. Further you will be required to cover any costs that would have been covered such as medical bills and the like from your own pocket. In extreme cases there is even the possibility of criminal charges.

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