The short answer to the question of whether a sole proprietor needs workers’ compensation insurance is No and yes. Unemployed independent owners or freelancers are generally not required to purchase workers’ compensation insurance. However, doing so can benefit your business when you are the sole owner and you do work that could result in injury.
For example, if you are a delivery driver, contractor, roofer, hair stylist, home babysitter or substitute teacher, these are the types of businesses you could get injured in the process. process of its service implementation. For these types of businesses, I suggest that you consider investing in workers’ compensation insurance to protect yourself. That way, if you’re injured on the job, your employee policy can help pay for medical costs and replacement wages while you recover.
However, the question of whether or not you need workers’ compensation insurance is complex. Here are the things you need to keep in mind.
3 factors when deciding whether to buy compensation insurance for employees or not
There are a number of considerations before deciding whether to purchase workers’ compensation insurance. If you are a sole owner, here are three things that are essential to making your decision.
1. Your customers can request it
While you may be legally exempt from purchasing workers ‘compensation insurance, a company may require you as an independent contractor to have your own workers’ compensation policy.
Clients may ask you to have your own workers’ compensation insurance as a way to limit their liability. Some corporations have faced workers’ claims from independent contractors, who were injured while on their property, providing a service. Now, as a precaution, many business customers have begun asking any contractor they hire to provide compensation insurance for their workers.
2. See Your Legal Requirements
The IRS be very strict about who you can claim to be 1099 independent contractor and who must be a W2 employee. Each state also has its own workers’ compensation laws. Some states will view subcontractors as your employees and require you to have workers’ compensation insurance for them.
3. Don’t misclassify your workers
Don’t think that just because you don’t hire a full-time worker you won’t have to pay labor taxes, give them a W-2, or worry about the employee’s crew. If any of your subcontractors do not provide the services they provide to the public, then it is very likely that they are legally considered your employees.
Also, If one of your subcontractors is injured while working for you and the state determines that the worker should actually be classified as an employee, that could result in a substantial fine. Business owners can face some penalties when hiring subcontractors that are actually working as employees. You may need to ask any subcontractor with proof of worker compensation insurance to protect your business. But even that may not save you. Even if your subcontractors have their own coverage, your state can still determine that they are technically your employees, which means you have an insurance responsibility. for them by the nature of the worker.
Get professional advice
Meet with an attorney or HR consultant to review your job description before hiring any contractor to determine if the worker you need will be your company’s contractor or employee to determine the definition. and if you need to purchase workers’ compensation insurance.
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