Learn if there’s a sole proprietorship workers’ comp exemption — and if help with medical costs and lost wages should be ignored.
A common misconception among small business owners is you only need workers’ comp if you have employees. But when it comes to workers compensation insurance for sole proprietors, that’s simply not the case.
Read on to learn more about sole proprietorship insurance and workers’ comp requirements.
Workers’ comp can help protect sole proprietors and business owners from the costs associated with medical expenses, lost wages, work-related injuries, job retaining or employers’ liability.
Here are just a few examples of self-employed workers or sole proprietors who could benefit the most from workers’ compensation coverage.
If you’re a yoga instructor, pilates instructor, personal trainer or dance teacher, you’re probably a sole proprietor. Many fitness professionals work independently and provide services at other businesses, such as gyms, fitness centers and corporate offices.
It’s common for these partnerships to require insurance coverage, including workers’ compensation insurance and general liability insurance (to help cover accidental damage to someone else’s property or other non-employees).
Also, if you are a fitness professional and recruit other people to help you, even part-time employees, your state could require you to have a workers’ comp policy.
Here’s an example:
Your outdoor yoga practice is taking off, so you expand your classes to include more students. You have a friend who is also a yoga teacher, and you ask them to teach with you so you can give students more attention.
You think they’re an independent contractor working alongside you and not an employee who needs workers’ comp. But some states could classify them as your employee and require you to carry workers’ comp coverage.
Many businesses that hire independent cleaning professionals also require workers’ comp owners coverage before they’ll sign a contract with you.
Even if you’re just one sole proprietor working alone, your coverage could provide a layer of protection for the company you are working for if you get hurt on the job.
Many states require construction contractors to have workers’ compensation insurance.
Check the state coverage requirements where you work if you’re a sole proprietor in a construction trade:
Buying a workers’ compensation policy for yourself might seem unusual, but it’s not uncommon. In some cases you may be required to carry the coverage. And in other cases the benefit can outweigh the cost.
State governments regulate workers’ compensation laws, and the rules for compliance are different in each state.
Even if coverage is not required, If you work in a high-risk industry such as an auto service and repair shop, sole proprietor workers’ compensation insurance could help cover medical bills or lost income in case you get hurt on the job.
In some cases, such as in construction trades, workers’ comp might be a necessity to help you get a license, permit or certification.
Many companies will only hire you as an independent contractor if you have workers’ comp.
Why? They probably don’t want to pay for workers’ comp for sole proprietors they hire to, say, power wash their floors or do a company photoshoot. But they also don’t want to have to pay your medical costs if you get hurt.
To help protect themselves, many companies that hire sole proprietors will ask for proof of insurance, also called a certificate of insurance or a COI, before they’ll sign a contract with you.
Your personal health insurance might not provide the right coverage for workplace injuries.
Even if your health insurance covers your medical expenses, it won’t cover any of your lost wages. Workers’ comp may be able to help with that.
A workers’ comp exemption is a declaration that you do not need coverage because you don’t employ anybody. And you can get a sole proprietor workers’ compensation exemption in some states.
For example, you can only renew your California general contractor license if you have proof of coverage or a valid sole proprietor workers comp waiver.
To get a workers’ comp exemption for a sole proprietorship, you’ll have to complete the right form for your state, take it to be notarized and usually pay a small fee.
You won’t have to pay for workers’ comp coverage, but you might have to pay out of pocket to cover your expenses if you get hurt at work.
Sole proprietors can help lower their business risks with other types of insurance protection in addition to workers’ comp.
These could include:
NEXT is 100% dedicated to helping self-employed professionals and small business owners find the right business insurance at affordable prices.
All of our services are online, so you can get an instant quote, review options and buy coverage in about 10 minutes. You’ll have immediate 24/7 access to your certificate of insurance as soon as you buy your insurance.
And if you need help, our team of US-based insurance advisors is standing by if you have questions.
Matt Crawford leads NEXT's content team. He's a small business insurance specialist and has worked with business owners throughout his career as a community journalist and content marketer.
You can find him at one of his many favorite local restaurants in the San Francisco Bay Area when he's not at work.
