Do Sole Proprietors Need Workers’ Compensation Insurance?

Workers’ compensation insurance protects your business and helps take care of employees who get sick or injured on the job. Nearly every state requires workers’ compensation insurance when a business has employees. 

However, in many states, a business owner is not considered an employee and is not required to be covered by workers’ comp insurance. This is often why business owners do not include themselves in their own workers’ comp coverage.

Just because it’s not required doesn’t mean it’s not needed.

If you’re a sole proprietor, you’re the motor that makes your business run. If an accident or an injury on the job puts you out of action, there’s a good chance that your business, and all that it provides, could come to a screeching halt.

Some Uncommon Workers’ Compensation Injuries

Workers’ compensation can cover a wide range of situations where you get hurt or become sick, such slips and falls, machinery accidents, and exposure to harmful substances. However, workers’ comp can often cover some incidents you may not be aware of. 

• An allergic reaction from food delivered to you at work
• Breaking your ankle at a jobsite
• Injuring your back reaching for a pencil that rolled under a desk
• Sustaining bites from a client’s dog while working at their home

The High Cost of Not Having Workers’ Compensation 

Work-related accidents can happen, and when they do, it can be costly if you don’t have workers’ compensation coverage. Here are a few examples of the most frequent types of employee injuries and their average claims.¹

¹Data taken from the National Council on Compensation Insurance’s (NCCI) Workers’ Compensation Statistical Plan database.

What is a Workers’ Compensation Ghost Policy?

A ghost policy is a type of sole proprietor workers’ comp. It’s called a ghost policy because no employees exist, and the policy covers no one.

A ghost policy is intended only for single-person businesses with no employees. It does not provide coverage to the business owner, and it should never replace your state’s requirements for workers’ comp insurance.

Many small business owners may want to, or need to, obtain sole proprietor workers’ comp to bid on certain contracts or meet specific insurance requirements, but they don’t want to pay a high premium for workers’ comp insurance. 

Since premiums for workers’ compensation policies are often based on employee payroll, a ghost policy is often less expensive than traditional workers’ compensation coverage.