What You Need to Know about Worker’s Comp When You Are Self Employed

As you probably know, workers’ compensation insurance is a type of liability insurance policy covering lost wages and medical expenses resulting from a work-related injury or illness. In other words, workers’ compensation insurance protects an employer from a potential lawsuit that can arise from a work-related injury or illness. For this reason, most states across the U.S. require employers to carry workers’ compensation insurance. Now, if you are self-employed and you have no employees, the law does not require you to carry workers’ compensation insurance, but this type of coverage may still benefit your business in several ways. Here is some more information on this topic.

Reasons to Purchase Self-Employed Workers’ Comp

While the law does not require self-employed individuals to carry workers’ compensation insurance, you may need to purchase self-employment workers’ compensation for the following reasons:

• Fulfill contractual requirements – In order to protect themselves from potential lawsuits related to work injuries, some businesses require their independent contractors and subcontractors to carry their liability insurance policies, including self-employment workers’ compensation insurance. In simple words, self-employed workers’ comp coverage can increase your job opportunities.

• Protect against lost wages and medical costs – Most health insurance policies exclude work-related injuries and illnesses. It means that even if you already carry health insurance coverage, you may still need workers’ compensation insurance to cover your medical-related expenses adequately, especially if you suffer an injury or illness while at work. At the same time, if you are unable to work for an extended period due to a work-related injury or illness, your self-employed workers’ comp can compensate you for your lost income during that period.

Self-Employed Workers’ Comp and Subcontractors

If you engage subcontractors, you may need to carry workers’ compensation insurance coverage depending on your local workers’ comp laws as workers’ comp laws tend to vary from one state to another. For example, self-employment workers’ compensation coverage is optional in Texas, irrespective of whether you have employees. On the other hand, the state of New York mandates all employers to carry workers’ comp coverage. Because Workers’ compensation insurance laws vary across state lines, you should review your local state laws to ensure you comply.

How to Differentiate a Contractor from an Employee

You can use tax forms to differentiate a contractor from an employee. Traditionally, an employee and a contractor receive a W-12 and a 1099 tax form, respectively. However, because workers’ compensation insurance laws change from state to state, this may not be true in some states. More precisely, you could be held liable for a 1099 contractor’s injury or illness in some states. In such cases, if you do not have self-employed workers’ comp, you could face fines, jail time, or both, depending on the local self-employment workers’ compensation laws. The state of New Jersey, for example, considers this as a criminal offense that carries a maximum sentence of 18 months in jail and/or a $10,000 fine. On the other hand, Arizona is more lenient, requiring offenders to pay a civil penalty of $1,000.

These are some of the most important reasons to carry self-employment workers’ compensation. For assistance with all your coverage needs, contact the experts at Pierce Insurance Group. We are ready to assist you with all your insurance questions and needs.

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