Workers' Compensation Insurance for the Self-Employed: Do You Need It?

Workers’ compensation insurance pays for expenses caused by work-related injuries, such as medical bills, lost wages and even legal fees resulting from lawsuits. While this is typically available in traditional employer-employee setups, self-employed individuals — such as freelancers or sole proprietors — can also purchase coverage to have the same protection.

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. Learn more about workers’ compensation insurance for self-employed individuals, why it can help, how to get it and more before purchasing a policy.

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 the requirement for workers’ compensation insurance, while others may mandate coverage regardless of the number of employees.

For instance, in Alabama, you are legally required to provide workers’ compensation coverage if you have at least five or more employees, regardless of status. In Idaho, on the other hand, you will need to get workers’ compensation insurance if you have at least one or more employees, whether they’re full-time, part-time, seasonal or occasional.

Although workers’ compensation insurance for self-employed individuals with no employees is not legally required, having coverage helps protect you in the event of an accident on the job.

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.

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

There are several ways to purchase workers’ compensation insurance as a self-employed individual, depending on where your business is located.

In most states, you can simply purchase insurance from a private insurer. However, if your business is based in North Dakota, Ohio, Washington or Wyoming, you’ll have to buy insurance directly from the state by approaching your state’s workers’ compensation or insurance office.

If you live elsewhere in the U.S., follow the steps below to purchase workers’ comp insurance from private insurers:

• Determine workers’ compensation requirements: Before purchasing a policy, it’s important to determine your state’s requirements, as these can vary.
• Research different providers: Research business insurance providers that offer workers’ compensation insurance for self-employed individuals. You can start by looking online or asking for recommendations from other self-employed individuals or industry associations.
• Compare quotes: Contact insurance providers to get quotes and compare coverage options. You can typically do this online, but you might have to call or visit some providers.
• Apply for a policy: Once you’ve chosen an insurance provider and policy that meets your needs and budget, apply for the policy. Depending on the insurer, you may be able to apply online, through an agent or in person.

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’s workers’ compensation board 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.

A certificate of exemption will be issued by your state's workers' compensation office once your application is approved. A copy should be kept on file for business transactions and other dealings.

Workers’ compensation for self-employed individuals is essential to avoid financial hardship. Find out what to expect when it comes to workers' compensation for self-employed individuals through our frequently asked questions.