An Overview of Workers’ Compensation Insurance for the Self-Employed

BY: ON MONDAY, JULY 18, 2011

An Overview of Workers’ Compensation Insurance for the Self-Employed

Though laws vary by state, by enlarge, business owners across the country are legally required to provide workers’ compensation insurance, even if they only have one employee.

Typically, a self-employed or freelance worker does not have to buy workers comp insurance, though it is still available to them. Since workers compensation is regulated by the state, self-employed persons can still acquire insurance through private insurance companies licensed to operate within the state.

Though not required, there are many foreseeable scenarios where a self-employed business owner would be well-served to insure themselves. For example, your typical handyman or contractor – workplace injuries for these types of workers are commonplace, and being the only employee of the company, a prolonged injury could doom the business and sink the individual financially without some kind of workplace coverage.

Many micro business owners make the mistake of forgoing workers’ compensation insurance because they already have a family or personal medical insurance plan. Sure, health insurance will help pay for medical expenses like doctor visits and procedures, but it certainly will not pay out for lost wages. A prolonged injury that does not allow the individual to continue working could lead to financial ruin. Workers compensation is designed to protect employees who are hurt on the job. This includes paying out disability claims to keep a policyholder afloat until they can get back to work.

Private contractors who perform the majority or all of their work for one client need to take an honest look at the relationship with this company before exploring workers comp options.

In a critical legal battle against Microsoft, the IRS proved that regardless of job titles and contract verbiage, a so-called private contractor does fall under the classification of an employee if the company they have a relationship with controls the “manner and means” of their work. Meaning, Microsoft was providing the workers with supplies and telling them what work needed to be done, even though they were listed as independent contractors.

The tax ramifications in a situation like this can be dramatic, with a legal ruling forcing the employer to pay back taxes, or causing the employee to lose deductibles or health insurance coverage.

To determine whether someone listed as a private contractor is an employee or is truly self-employed, the IRS looks at who is in financial control of the terms of the relationship, and who determines what and how work will be done.

If you are in a business relationship where the lines of employee/ self-employed are blurry, check with the IRS and the company before buying insurance. Being misclassified can cause you to unnecessary purchase insurance when you are already covered by the company, or worse, you find out that you are not covered by the company’s policy after an injury has taken place.

As a business owner it is your responsibility to make sure your livelihood is protected in case of emergency. Your health and your finances are not areas where you can afford to take chances.

About the Author

Javi Calderon
Javi Calderon is a freelance writer, copywriter and journalist with interests in music, sports, small business marketing, and technology.
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