Workers’ Compensation Insurance for Contractors: What You Need to Know

You’ll often hear about workers’ compensation insurance for contractors and might automatically think that you need it. The reality is that you might not if you are a single contractor and a policy is not required by a general contractor or a client. Let’s take a closer look at workers’ compensation insurance for contractors. 

Determining Whether to Enroll in Workers’ Compensation Insurance for Contractors

As a contractor, you may find yourself in one of three scenarios. Each scenario has a different workers’ compensation requirement and recommendation. You may be a:

• Independent Contractors: On their own, independent contractors don’t need a workers’ compensation policy unless it is required by law or required by a general contractor on a large project. For most independent contractors, contractual requirements will determine their needs and require them to get a policy. 
• Contractors With Employees: Employers in most states need to get a policy immediately after hiring their first employee. Almost every state requires a policy if you have at least one part-time employee. 
• Companies Employing Contractors: If you are employing subcontractors on a job, you will want to have a contract that obligates each subcontractor to get workers’ compensation. You may also want to get a policy to cover any gaps or if it is required by state law; however, in most cases, you aren’t required to obtain a policy. 

Legal Requirements to Consider

There are no federal regulations governing whether a company needs to get a workers’ compensation policy or not. This is determined at the state level. All states except for Texas require a policy if you have employees, though the number of employees mandating a policy varies from state to state. 

If you are required to have a policy and are discovered not having one, there are penalties and fines that you will have to pay. Fines may be something like $100 per day of noncompliance for each employee. 

Coverage and Benefits of Workers’ Compensation 

Workers’ compensation insurance has several coverages and benefits that it provides to employees while protecting employers from financial harm as a result of claims. 

Medical Expenses

Workers’ compensation insurance pays the medical expenses of employees hurt on the job. Medical expenses include emergency care, follow-up doctor’s visits, and physical therapy.  

Lost Wages

Workers’ compensation insurance pays employees lost wages while they are out of work. This isn’t a dollar-for-dollar match but a percentage of the employees’ wages so that they have income while out for injury. 

Disability Benefits

If the employee is determined to be disabled, the workers’ compensation insurance will pay a disability payment to the employee to replace wages lost from the injury or illness. This is a percentage of what the employee was making in the first place. 

Death Benefits

Should an employee die from his work-related injuries, the workers’ compensation policy will pay a death benefit sum. This might be a few thousand dollars to help with the burial expenses incurred by the family for the loss.

Workers’ Compensation Insurance Costs and Premiums

Workers’ compensation premiums vary from company to company. There are several factors that affect the rate you pay. 

Factors Affecting Premiums

The factors that affect your workers’ compensation premium include:

• Location: Where your company is located will affect its premiums. Some locations are more prone to injury and risk than others. 
• Claims history: Your claims history, known as an experience modification factor, will affect your rate. The more claims you have, the higher your experience modification factor. 
• Job Risk: What your employees do directly impacts their rates. Some jobs are riskier than others. For example, an accountant has less risk of injury than a truck driver. 
• Company Size: The bigger you are, the more you will pay. This is factored in based on payroll. 

How to Calculate Premiums

Every insurance company calculates the premium the same way. The calculation equation is: 

Premium = Job Classification Rate x Experience Modification Factor x (Payroll/$100)

Ways to Reduce Costs

You can reduce the cost of workers’ compensation insurance by maintaining an injury-free workplace. Having safety programs in place can give you a discount with insurers. Remember that fewer claims result in a lower rate. You also want to ensure that you have each employee’s job classified correctly. 

Choosing the Right Policy for Yourself or Your Team

Getting the help of an insurance professional is important when choosing the right policy. A professional will help you assess the risk and classify employees properly. By assessing your needs, they will also help you choose the right coverage levels for the policy. With the right quote in place, you can shop the policy around to see where you get the best rate. Keep in mind that some insurance carriers have a larger appetite for some risk and want those policies and will offer better pricing for them. 

Stay Safe Long-Term With Workers’ Compensation for Contractors

Even if a policy isn’t required by a contract or state law, you may want to consider getting one to protect yourself from accidents and claims. This is true even for independent contractors. Without a policy, you are responsible for the expenses and would need to tap revenues or company savings to pay for them. Check out our best workers’ compensation insurance carriers to find a company that best suits your needs.