Do I need workers’ compensation insurance? Here’s how you’ll know

Do you run a small business but aren’t sure if you need workers’ compensation insurance? If so, you’re in the right place.

You want to make sure you’re covering yourself adequately in case of an accident or illness, but you don’t want to pay for more protection than you need. Here’s how to know if your business needs workers’ compensation insurance.

Workers’ compensation insurance, defined

Workers' compensation is an important form of small business liability insurance. It can protect small business owners, sole proprietors, and independent contractors. Specifically, workers' compensation insurance can help protect against costs related to workplace injuries or illnesses—even if the injured employee had a pre-existing condition aggravated by work.

Workers' compensation benefits can vary widely by state. Generally, they can cover an employee’s:

• Medical care costs (including medical treatments, doctor visits, and surgery)
• Travel expenses
• Job training
• Death benefits in severe cases

Coverage can also include legal fees, attorney costs, and court awards if an employee files a workers’ compensation claim or lawsuit against your business.

Do I need workers’ compensation insurance?

This answer may not be as cut and dry as you think. If you have any number of employees, regardless of your company size, your state laws may require you to have workers' compensation in place to protect injured workers.

But if you are self-employed, a business owner, or sole proprietor without any employees, it's a little more complicated. States have workers’ comp exemptions, and there is no single, correct answer to do I need workers' comp insurance.

So, how can a small business owner tell if they should get workers' compensation insurance coverage? Consider these scenarios:

You’re self-employed without employees or contractors

Business owners without employees don’t need self-employed workers’ compensation insurance in most instances. A few exceptions exist—for example, your state may require coverage if you work in a field where injuries are common, such as construction.

You’re an independent contractor, but a client wants you to have workers’ compensation coverage

Some companies won’t work with you as a contractor unless you have your own insurance policy. It’s a common clause in a contract. Usually, a general liability policy is enough to satisfy the requirements. But clients can demand you also carry workers’ compensation coverage if you want to work with them.

You work alone but worry about being injured while working

Even if you don’t have your own workers, you might worry about sustaining an on-the-job injury. Depending on your industry, it might make good sense—workers’ comp insurance costs are more affordable than you might think.

Paying your insurance premium can protect you if you’re hurt while working.
For example, personal health insurance companies won’t usually cover work-related accidents or illnesses, and they definitely won’t offer reimbursement for lost wages. But a workers’ compensation insurance policy can provide lost wages and payment for medical bills if you’re hurt while working.

You’re a small business owner or sole proprietor with at least one contractor

This situation is tricky because it depends on the state. Generally, workers’ comp for sole proprietors isn’t required if you use independent contractors. However, according to the National Employment Law Project, it’s important to understand that contractors are different from employees—up to 30% of employers misclassify employees as independent contractors.

For instance, the laws and requirements where you live might view subcontractors as employees. In that case, you’re required to carry workers’ comp protection to cover them. If you misclassify employees as independent contractors, you can get hit with fines and civil penalties. The IRS has helpful resources to understand the difference between an employee and an independent contractor if you’re not sure.

You’re a small business owner or sole proprietor with one or more employees

This scenario doesn’t have a simple answer, either. It depends on the state’s laws where you live.

For example, Arizona worker’s comp laws for businesses with one or more employees require workers’ comp coverage—even if you hire family members or a single part-time, full-time, or remote employee. On the other hand, sole proprietors and single-member limited liability companies (LLC) have the option to purchase workers’ comp in Florida.

Workers’ compensation insurance requirements and laws by state

While it might be obvious to larger companies, smaller businesses may not need to carry workers' comp. But even small companies should consider it to protect against employer’s liability. In some states, if a full or part-time employee suffers a work-related injury and it isn't reported promptly, your business could be held liable for that worker's medical bills.

Check with your state workers’ comp officials, Department of Labor, or Division of Workers’ Compensation to be sure, but here are some common state workers’ comp rules:

• California workers’ compensation laws require businesses to have a policy if they have 1 or more employees. Sole proprietors (except roofers) are exempt in California.
• Nevada businesses with at least 1 employee need workers’ comp coverage, but some exemptions exist.
• In Pennsylvania, you can exclude owners and officers from coverage. But even if you have just 1 employee, you must buy workers’ comp in Pennsylvania.
• Georgia workers’ comp laws require you to have coverage if you have 3 or more employees. Still, partners, sole proprietors, and some corporate officers can file for a Georgia workers’ comp exemption.
• You need workers’ comp in South Carolina only if you employ 4 or more individuals and have a total annual payroll of at least $3,000. A few exemptions exist.
• New York laws typically require you to have workers’ comp if you hire someone to do work for your business—even if they’re a contractor.

How to get workers’ compensation insurance online

Even though workers’ compensation coverage requirements vary by state, getting a policy online is a breeze. With Huckleberry, you can get a quote by answering a few simple questions about your business—we’ll walk you through the process from start to finish.

Get a workers’ comp quote for your small business today! It’s affordable, easy, and everything is online.