Workers’ Compensation for Self-Insured Employers

Having workers' compensation insurance can help your business avoid the cost of medical expenses for employee injuries or illnesses. In fact, it can mean the difference in having enough funds to stay in business when a claim arises after a workplace incident.

However, certain professionals may prefer to be self-insured when it comes to workers' comp. Other professionals, such as self-employed individuals or independent contractors, might need to get a special type of workers' comp.

Fortunately, a local independent insurance agent can help you get set up with the right self-insured workers' comp insurance. They'll help you find the policy that covers your unique needs. But first, here's a closer look at workers' comp insurance for self-employed individuals, self-insured individuals, and independent contractors.

What Is Workers' Compensation Insurance?

Workers' compensation insurance is a policy taken out by an employer or independent contractor that can help pay for medical expenses of an employee injury or illness that occurred due to job duties or the workplace. This policy can also pay for partial wages, usually up to two-thirds, for any employees or independent contractors while they're recovering and need time off work. Some worker's comp policies also may offer disability payments. If you are looking for a business insurance plan, you will likely also need or benefit from workers compensation insurance.

Does a Self-Employed Person Need Workers' Comp Insurance?

Workers' compensation insurance might still be required for self-employed individuals. Most states require employers to offer workers' comp if they have one or more employees, depending on the business's industry.

However, workers' comp might still be a requirement even if you're self-employed. You'll need to research the laws in your state to determine if you need to self-insure. It's not wise to just skip workers' comp entirely and assume you're fine without it.

Even if you have health insurance, if you're self-employed, you might not be covered against work-related incidents that lead to injury or illness. If you get injured or ill due to your job duties, health insurance might not cover the claim. That's why self-insured workers might need both health insurance and a workers' compensation insurance policy.

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How Does Self-Insurance for a Company Work?

Self-insurance means the employer is responsible for covering all workers' compensation claims out of their own funds. The employer essentially assumes all financial risk for offering workers' compensation benefits to employees.

The various expenses self-insured employers can be responsible for include medical expenses, lawsuits, and more. A business must pay all these costs out of its own pocket rather than paying a fixed premium to an insurance company in exchange for coverage.

How Do I Know If a Company Is Self-Insured?

Specific criteria or signs that indicate a company is self-insured can include noting that a company pays directly for claims or doesn't have a commercial workers' compensation insurance provider listed. If you're wondering if a business is self-insured, you can request proof of insurance coverage before signing any contracts with them. Look for details about the insurance's administrator. Any company insurance paperwork that lists an insurer as "administered by" can mean the business is self-insured.

You can also get in touch with the business's employee benefits administrator in the HR department to find out if the company is self-insured. Finally, if you become an employee of a self-insured business, this information must be disclosed to you thanks to the Employee Retirement Income Security Act. This act requires businesses to provide employees with information about how their insurance is funded.

How Do You Become Self-Insured?

To become self-insured, you'll need to follow the legal and procedural requirements. These can include meeting state regulations and setting aside financial reserves to cover potential costs related to injured workers and related incidents.

Make sure to review your specific state's guidelines for becoming self-insured. You might be required to complete an application and provide other relevant information, such as prior workers' compensation claims and audited financial statements.

Your business will be approved or denied by your state to become self-insured based on its compliance with reporting requirements, such as providing any actuarial annual reports requested, and other factors. Each business entity will be required to file its own application to self-insure with workers' comp. Any divisions or subsidiaries of your business won't be automatically covered just because your self-insurance application is approved.

Self-insured businesses must agree to comply with all Workers' Compensation Board Laws, Rules, and Regulations. They must also pay the Board a security deposit upon application. These security deposits can be made in the form of a surety bond or cash. If a self-insured business fails to pay out workers' comp, disability, or paid family leave benefits to its employees, the security deposit will be used as compensation.

How Much Is Workers' Comp Insurance for Self-Employed Individuals and Independent Contractors?

The average owner-operator workers' comp insurance cost can vary significantly depending on your industry and other factors. Workers' comp costs for self-insurers are likely to be different than for employers who purchase coverage through an insurance carrier. In general, workers' compensation costs an average of $45 per month.

However, the following criteria can all impact the cost of workers' comp:

Self-insured workers like independent contractors might pay much less for their coverage than a large self-insured corporation does. An independent insurance agent can help you find affordable workers' compensation insurance near you.

What's Not Covered by Workers' Comp for Self-Insured Individuals?

Employers workers' comp insurance and self-insurance workers' comp tend to have the same coverage exclusions. Some of the things commonly not covered by workers' comp include:

• Third-party injuries or illnesses
• Injuries and illnesses not related to job duties or the workplace
• Professional liability claims
• Self-inflicted injuries and illnesses

Your business, whether it's self-insured or not, likely needs multiple types of coverage, including general liability insurance or professional liability insurance. 

If you're concerned about potentially expensive lawsuits, you may also want to look into getting excess insurance to protect you. Commercial umbrella insurance, also known as excess liability insurance, can increase your existing liability coverage to a limit of $1 million or greater.

Are There Penalties for Not Getting Independent Contractor Workers' Comp Insurance?

If you're required by your state to carry workers' compensation as an independent contractor, self-employed individual, or owner-operator, you could face various penalties if you don't obtain coverage.

Fines and jail time are common penalties for the failure to carry workers' comp. For example, the state of Arizona issues a civil penalty fine of $1,000 for independent contractors that fail to carry workers' comp despite being required to. The state of Massachusetts can issue civil fines of up to $250 per day without coverage, as well as jail time and criminal fines of up to $1,500.

That's just one more reason to be sure you review your state's workers' compensation requirement laws and regulations. Your attorney and independent insurance agent can also help you classify your employees correctly to determine your possible workers' comp insurance needs.

An Independent Insurance Agent Can Help You Get the Workers' Compensation You Need

Whether you're an employer, independent contractor, self-employed worker, or an owner-operator, an independent insurance agent can help you find the right kind of workers' compensation insurance. Even if you choose to self-insure, your independent insurance agent can help ensure you fulfill your state's regulations and properly complete the application process. Get started with a local independent insurance agent to get set up with the workers' comp coverage you need today.