Do Sole Proprietors Need Workers' Compensation Insurance?

Workers' compensation insurance laws vary slightly in each state, but you're probably not required to have it if you're a sole proprietor with no employees. Nonetheless, you may need the policy once you hire independent contractors or even part-time workers to work for you.

Examples of Self-Employed Contractors Who Might Need Workers' Comp:

• Plumbers: You usually work alone, but you recently enlisted your nephew after landing a bigger plumbing contract. If he got hurt at work, you'd have to pay for his treatment costs. However, you can avoid that expense by carrying workers' comp. Also, your state might require it because now you have an employee.
• Yoga teachers: You and your friend are yoga teachers. Your sole proprietorship business is growing, so you ask your friend to help you train your yoga students. Depending on your state, you may have just hired an employee, requiring you to have workers' comp.

Workers' Compensation Insurance Is Necessary in Some Cases to Get Contract Work

Many businesses, such as general contractors, may require you to have workers' comp before hiring you. It's one of the main reasons to purchase the policy for yourself as a sole proprietor or independent contractor. In doing so, you're protecting those who hire you from potential on-the-job injury lawsuits and medical costs.

It's perfectly legal for such companies to deny you contract work unless you have the necessary insurance coverage. Most of them will usually ask you to provide a certificate of insurance as proof of coverage before signing a contract with you.

Workers' Comp for Workplace Injuries

Buying workers' comp for yourself may make sense even if you don't have any employees and your state doesn't require it. The policy can cover your medical costs if you suffer a work-related injury or illness. In this case, you wouldn't have to use your personal insurance for your treatment.

Still, your health plan won't compensate you for lost wages as you seek treatment or recover at home. You'd need a workers' comp policy for that.

What Is Sole Proprietor Workers' Comp Exemption?

A workers' comp exemption saves you from carrying the policy when you have no employees. However, anyone you enlist for work with the waiver in effect might have to bear the medical expenses related to their own workplace injuries.

In many states, you'd need this sole proprietor waiver or proof of paying workers' comp to renew your contractors' license. You have to complete a specific form and have it notarized for a small fee to get this exemption.

Other Insurance Policies You May Want to Consider

Workers' comp is one of the many useful insurance policies for sole proprietors and independent contractors. Other important coverages for small businesses include general liability (GL) insurance.

GL insurance can protect your business in the following scenarios:

• Medical costs for third-party injury involving someone other than you or an employee, such as a customer hurt at your shop in a slip-and-fall accident
• Third-party property damage, such as damaging part of your client's home while installing a plumbing system

Consider these other insurance coverages for your sole proprietorship business:

• Commercial auto insurance if you own or lease cars for business operations
• Professional liability insurance to cover the risk of a lawsuit by clients that are unhappy with your work or advice

How Knight Insurance Services Can Help

Workers' compensation insurance can protect your sole proprietorship business even when you are not legally required to carry it. To learn more about small business owners' insurance policies, contact our experts at Knight Insurance Services today!