Do Independent Contractors Need Workers Compensation Insurance?

If you are a sole-proprietor on a job that requires a certificate of insurance, chances are it requires a workers compensation policy to be in place. We get questions every month asking whether an owner of a company needs to purchase insurance on themselves and if not, how they can opt out.

The answer to this question ultimately depends on the state that you live in and can often change depending on the legislative agenda. For information about your specific state you can contact one of our Risk Advisors, but here we will provide you with a couple of options generally available.

Affidavit of Exempt Status

An affidavit of exempt status (often times referred by a different name) is a registration with usually a government administration that states that you are an independent contractor with no employees and are electing to be without any workers compensation coverage.

In many states this is the lowest cost option and will fulfill most certificate needs. This certificate will not come with any coverage in the event that you are injured.

No Payroll Policy (Ghost Policy)

Another low cost solution is the no payroll policy. This is a workers compensation policy that excludes the owner, but is an in-force workers compensation policy in the event of an employee getting injured. This is a safer option than the affidavit option, but still does not provide coverage for an owner. If you are hiring any 1099 independent contractors or you are not certain of having any employees in the upcoming year and do not want coverage, this would be our recommendation. This is subject to an audit each year verifying that you did not have any employee payroll.

Capped Payroll Policy

If you want coverage on yourself in the event of an injury, this is a great option. Each state outlines a flat, minimum, or maximum payroll cap for owners of a business. This is the best value of all 3 options since you can get coverage on yourself without being charged for your entire payroll. For questions about your specific state's payroll cap, contact one of our Risk Advisors.