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Your business means a lot. It’s a source of income for you and your family. It’s a part of your local community. And it’s a personal achievement you’ve built with talent, determination, and hard work.
As a sole proprietor, you’re the motor that makes your business run. But imagine for a minute what would happen to your business if something were to happen to you.
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.
That’s where sole proprietor workers comp coverage can make a huge difference for your business.
We know business insurance can be complex and confusing — and workers comp can top the list. Not to worry. We’ll break it down for you and show you why sole proprietors may need workers comp, and how to get the right coverage, quickly and easily.
You may have heard that most states require workers compensation only if you have employees. That gives rise to one of the most common questions about this type of coverage:
While it may not be required by law in your state, you may need workers compensation insurance to land jobs in certain higher-risk fields, such as construction or roofing — even if you run a sole proprietorship with no employees.
In fact, a customer, contractor, or client may require you to have sole proprietor workers comp as a way to protect themselves from liability if you get injured or ill while working for them.
The answer is, “It depends.” If you occasionally hire freelancers or subcontractors for larger projects or to help meet increased demand, some states consider those people to be your employees. In those cases, you will likely be required to have workers compensation coverage.
Regulations and requirements can vary greatly, so it makes good business sense to understand the laws in your state. But don’t stop there. There can be significant differences, even among neighboring states. So if you’re doing business across state lines, it’s important to know the workers comp laws in those locations as well.
Like many other aspects of workers compensation, coverage requirements for LLC members are determined by state laws.
Even if your one-person business is structured as an LLC, you still may have some of the same workers compensation requirements as you would if you were structured as a sole proprietorship — especially if you take part in day-to-day operations and the work is in a high-risk category.
It’s a good question, especially if you already have health coverage. The truth is, many health insurance policies won’t cover everything that workers comp could. For example, if you get hurt on the job and you can’t work, a standard health insurance plan may not cover you, and you may have to pay for medical expenses out-of-pocket.
In addition, workers comp also may cover lost income due to your injury and for rehabilitation and retraining costs as well. In that case, many medical coverage plans won’t cover those costs.
When you purchase traditional workers compensation insurance, it typically covers your employees if they get injured or sick while on the job. The coverage may or may not extend to the business owners (including sole proprietors) or partners of the business.
With sole proprietor workers comp, you are covered as an owner of the business. Depending on the type of policy, you can receive the same benefits that one of your employees would receive.
These often include:
Medical payments As mentioned above, your workers comp policy may help pay medical bills and help provide you with extra peace of mind.
Rehabilitation expenses Some work-related injuries take more than just immediate medical care. Rehabilitation and therapy also may be required. If so, your workers comp policy could cover those costs.
Lost wages Recovering from a work-related illness or injury also could keep you out of work. If you’re a sole proprietor, that could be a big financial hit. Workers compensation can often make up some of your lost income while you recover.
Death benefits While not a pleasant thought, if you die as a result of a workplace injury or illness, your workers comp policy can cover funeral costs and financial assistance for your family.
Some things not covered by workers compensation are:
Whether it’s protecting you and your business or meeting the requirements of a client or customer, your reasons for getting sole proprietor workers comp can vary. That’s why we offer two types of coverage so you can choose what works best for your business.
This is an affordable workers comp policy for sole proprietors, LLCs, partnerships, and noncontracting S-corps with no employees, subcontractors (1099ers), or day labor. It can provide the full set of workers compensation benefits required in the state where you work.
If your primary need for workers compensation coverage is to secure contracts and other business, you may want to consider the Solo X policy. It can provide a certificate of insurance (COI) to satisfy workers comp requirements on certain projects where you may be hired to work.
This type of policy can be less expensive than traditional owner-included policies because it’s an “owner excluded policy.” This means the policy does not provide you with coverage benefits — just a COI (certificate of insurance).
This is often referred to as a “ghost workers comp policy.”
A ghost policy is a type of workers compensation policy for a business with no other employees beside the owner. Generally, the owner is excluded from workers comp coverage under this type of policy.
Since premiums for workers compensation policies are often based on employee payroll, ghost policies are often less expensive than traditional workers compensation coverage.
If the concept of a ghost workers comp policy seems as strange as, well, a ghost, that’s understandable.
Unlike conventional “ghost policies,” Solo X offers business owners a level of protection with a premium that is often significantly lower than a traditional workers comp policy.
That’s because Solo X includes an accident benefit policy. This coverage pays out a lump sum for specific types of injuries, even if they don’t occur at work, up to the policy limits.
Some states use a Workers Compensation Waiver or Exemption form to allow certain business owners, such as independent contractors, to apply for a workers comp waiver.
You can use a waiver to show a hiring business that you’re exempt from workers compensation responsibility.
Much like the laws governing workers compensation can vary by state, so too can the laws and processes involved in getting a waiver. In most cases, you’ll have to meet certain filing requirements and pay a fee. Check to see if waivers are accepted and how to obtain one in your state.
It’s important to remember that even if you do qualify for a waiver, some jobs may require that you have workers compensation coverage to work as a subcontractor or to bid on certain projects.
If you’re a sole proprietor looking to get workers compensation coverage, your cost will depend on several factors, such as:
The state or states in which you work. Laws can differ widely among states and have an impact on who is required to be covered and when you need to provide that coverage.
Annual revenue or income. How much you earn in each year and how much you may spend on payroll is important information when you’re looking for workers comp quotes.
The type of work you do. Businesses that are at higher risks for work-related injuries often incur higher costs for workers compensation insurance.
Your insurance claims history. The number and the seriousness of any previous workers compensation claims also can affect your insurance premiums.
Each state provides a base rate for different types of work or job classifications. That rate is typically multiplied by your total income.
Generally, jobs with a higher risk of injury, such as construction, roofing, or tree work, can have a higher rate than jobs with lower risk, such as blogging or notary services. The other key variable is the rate that each state assigns to a specific type of job.
Generally speaking, yes they are. The IRS considers your insurance policy premiums as business costs, which are typically deductible.
In many cases, this applies to your state and local taxes as well, but it’s a good idea to check with your tax preparer or an accountant. They can offer the best guidance about deducting your insurance premiums from your specific business’s taxes.
While the cost equation is fairly simple, finding the cost for your coverage can take a bit of work.
Not to worry. We can simplify a lot of that for you. After all, we are called Simply Business. With just a few minutes online or on the phone at 855-930-2844, we can provide a quote and get you coverage, all at the same time.
We can do even more than that. That’s because we’re not just small business insurance pros — we’re small business advocates. So we can help you understand how sole proprietor workers compensation can benefit your business today.
And as your business grows and your situation changes, we can be there to help make sure that all of your business insurance coverage changes to match it.
This content is intended to be used for informational purposes only. It is not intended to provide legal, tax, accounting, investment, or any other form of professional advice.
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*Harborway Insurance policies are underwritten by Spinnaker Insurance Company and reinsured by Munich Re, an A+ (Superior) rated insurance carrier by AM Best. Harborway Insurance is a brand name of Harborway Insurance Agency, LLC, a licensed insurance producer in all 50 states and the District of Columbia. California license #6004217.