Are Business Owners Covered by Workers’ Compensation, and When Should Owners Get Compensation Coverage?

In almost every state, having workers’ compensation is mandatory for all for-profit businesses with very few exceptions. There are penalties for those who do not have the mandatory coverage for their employees. If you don’t have employees, you’re likely wondering if you’re required to have coverage, or if it’s a good idea to cover yourself as the owner of the company. If you’re a sole proprietor and an independent contractor for another company, it can become even more confusing.

What Does it Cover?

Before getting into whether you should be covered as a business owner, it’s best to learn what workers’ compensation covers. When a worker is injured on the job or becomes ill because of the workplace environment, that worker is entitled to benefits that replace his or her wages, coverage for medical treatments and eventual vocational rehabilitation if required. Workers’ comp will not cover self-inflicted injuries, ones suffered while the person wasn’t on the job and those sustained while committing a crime.

Independent Workers

In some cases, workers who are considered independent contractors might still be covered under your workers’ compensation insurance. Their tax status as a 1099 might not matter. This is also true for owners of a business who work for others as an independent contractor. For example, if you’re a plumber with your own business, but you work for a builder on his job sites as a contractor, you might need to get your own coverage or be placed under the builder’s coverage. It would depend on the state as well as the contract between you and the builder.

Small Business Owner

As a small business owner, you are required to have workers’ compensation if you have a certain number of employees. In some states the number of employees might be 1 or 4, and you’ll have to check with the governing bodies like the Department of Labor in the state to find out if you need to have coverage for your employees. You can opt to have a good insurance coverage or put yourself on the workers’ compensation plan. If you have to cover employees, it might save you only a minimal amount not to add yourself to the policy.

Sole Proprietor

For sole proprietors with no employees, it could mean saving the entire cost of the policy each month to avoid having workers’ comp for yourself. On the other hand, if you’re injured while on the job, you could be out of work and have no way to cover the loss of business. In many states, you’re not required to have workers’ compensation for yourself as the sole proprietor of the business.

When Should You Be Covered?

While many states don’t require coverage, you might opt for coverage in certain instances. While health insurance might cover injuries on the job, they could decide to fight coverage on injuries that took place on a work site. Health insurance is the option that is considered when workers’ comp isn’t taken for a sole proprietor or co-owners of a business. You’ll need to decide whether your business is risky enough for workers’ compensation versus regular health insurance.

High Risk Occupations

Construction workers, electricians, plumbers and welders are a few of the professions that might be independent workers that are on job sites considered dangerous. Some other industries require workers’ compensation before business owners will contract with your company like cleaning crews. If there’s a chance that you might get hurt on a job site, the company could require workers’ compensation coverage before they’ll give you the job.

How to Opt Out

Almost every state except Texas requires compensation insurance on your workers. You can opt out of compensation coverage in other states if you’re a sole proprietor or have a partnership where the two of you are co-owners. You might need to opt out of the coverage with the state’s insurance department. When you call the state’s insurance department, you’ll learn whether you can opt out at all. At that time, ask for a Request for Waiver form, or download it from the website.

Once the form is completed, it can be sent to the Workers’ Compensation Board. This board will approve or deny the request depending on a few factors.

In many states, you’ll need to have coverage if you have even one employee, but if you’re a sole owner or co-owner in a partnership, you can opt out of having workers’ compensation in certain instances. You should think long and hard about opting out of workers’ compensation though. In some industries, you’ll need coverage while working on a job site where injuries are common. Those working as an independent contractor with a company should learn whether they’d be covered under the business’ compensation or not. They might require coverage for contractors.