Workers' Compensation And Self-Employment
Being your own boss can have its benefits, which is why a significant number of American workers are working for themselves. According to recent statistics from the Pew Research Center, nearly 14.6 million Americans - 10 percent of the nation's workforce - are self-employed.
Going from working for someone else to being your own boss brings with it plenty of changes, including the way workers' compensation is normally handled. The following explains how these changes can affect you once you're self-employed.
Sole Proprietors and Freelancers are Exempt
Most employers are required by law to carry workers' compensation coverage for all employees under their direct employ. As a former wage or salary-earning employee, you were likely covered by your employer's coverage. Stepping out on your own as a freelancer or sole proprietor means you won't benefit from that protection unless you purchase your own coverage.
Even if you're working as an independent contractor for your old company, you won't be able to benefit from that company's coverage since you're not directly employed by the company. Nevertheless, there are still unique circumstances where injured freelancers and contractors can sue for workplace injuries. For this reason, many companies that contract with freelancers and independent contractors are requiring these individuals to carry their own workers' comp coverage.
On the other hand, you won't be subject to state laws requiring mandatory coverage. However, this only applies as long as your business remains a party of one.
Have Employees? You'll Need Workers' Comp Coverage
If you plan on growing your business by hiring employees or subcontractors, then the need for workers' compensation insurance becomes more apparent. Most state laws require employers with one or more employees to have coverage, so you won't have much choice unless your business is located in a state that doesn't require workers comp coverage at all.
Even if you're not required to have workers' comp coverage, having it can significantly reduce your financial exposure to personal injury lawsuits. If you're a general contractor, for example, then you're likely liable for any injuries incurred by the subcontractors you hire. If you're self-employed with a couple of employees under your wing, having workers' comp coverage can protect you in the event one of your employees is injured on the job.
Getting Workers' Comp Coverage
For the self-employed, buying workers' comp coverage can be a somewhat difficult affair. Most firms that offer the insurance coverage cater mainly to large businesses, meaning that plans for individuals may be limited or not available at all. Nevertheless, some firms are willing to offer coverage, but usually at significant cost.
Some states offer workers' compensation funds that protect individuals who can't find their own policies on the open market. As a result, these funds are often referred to as "insurers of last resort."
Talk to a lawyer, like Neifert Byrne & Ozga, for more help.