One of the most common questions for those who are self-employed and alone in their work is whether worker’s compensation is necessary. Due to the nature of all the aspects involved in that question, it is quite normal to have one, and since it can vary from state to state, many still question it.
Is it necessary to have worker’s compensation for myself?
For companies, most of the time, it is necessary to allow their employees to have worker’s compensation. Beyond being optional, it is a legal matter and essential to operate as a business.
Therefore, it may be the most natural thing to think that even if it is a small growing company, worker’s compensation should be paid to all workers, even if it is only one and it is the same founder of the company.
But fortunately, or unfortunately, in these cases, the answer is not as expected: self-employed workers who have a business or work independently are not required to pay workers’ compensation themselves.
This premise applies to most, if not all, states. From the most central states to the smallest and most diverse. For this issue, there are very few variations by state.
Throughout the United States, regardless of all other worker’s compensation legislation, self-employed workers as self-employed do not have to pay themselves worker’s compensation.
Can’t I have workers’ compensation as a sole proprietor and worker?
Although you are not required to pay yourself if you have no other workers in your company or business, as an owner and self-employed worker, you can opt to pay yourself worker’s compensation if you wish to do so.
In the United States, self-employed workers who do not have more employees can opt for all worker’s compensation benefits. However, they are not obligated to do so to practice legally—the picture changes when you have at least one other worker besides yourself.
In a small business where there is a worker in addition to the owner, the owner is obligated to provide worker’s compensation.
Even if this worker is infrequent or works only part-time, they must be granted worker’s compensation. The same can happen with independent contractors, depending on certain conditions.
Is it advisable to pay worker’s compensation yourself?
The question posed may be a bit complicated to answer. Because, depending on one’s particular conditions, it may be more or less convenient. For example, worker’s compensation may be an unfavorable expense in companies that are just starting up and have very little capital.
When start-up companies have only the owner as an employee, it is usually both because the owner does not need anyone else, because there is very little activity, and because the owner does not have the means to pay another salary.
The owners can use the worker’s compensation payment to reinvest in their business and expand it more quickly.
However, suppose the owners do not do so. In that case, the risk is quite considerable because, even if they have health insurance, it usually does not cover the costs of a workplace accident.
The case may vary from one policy to another, so before deciding whether to take out your worker’s compensation, you should contact your insurance company to ensure that you are covered in a work accident.
If the answer is no and you are not covered by insurance in the event of a work accident, you may be better off opting to take out your own worker’s compensation yourself, even though it may be a little more expensive.
You cannot ignore the need for worker’s compensation if the job involves high-risk work such as construction, heights, chemicals, hazardous substances, hot spots, etc.
Worker’s compensation does not only cover accident expenses
Now, there is something else you should know before deciding whether to pay your own worker’s compensation or not: worker’s compensation covers more than just the costs of the work accident.
In addition to covering accident expenses, worker’s compensation also covers the worker’s salary, even if they are a sole proprietor working for their own company.
If you have suffered an illness or injury severe enough to require you to rest at home unable to work, worker’s compensation may pay wages for that time off work.
But, in this case, it does not compensate the full salary typical of the self-employed, but rather, two-thirds of it. With this, the worker can cover their personal or work-related expenses even if they are not working.
In addition, this salary is tax-exempt. Therefore, even if, in the first instance, the compensation received is less than the typical total obtained under normal conditions, the second one suffers a tax reduction, and the first one does not.
Thus, even if the worker’s compensation salary is only two-thirds, it can sometimes be more than the typical after-tax salary.
Some companies do not hire workers without compensation
Another aspect to consider is that if the self-employed worker usually provides services to companies or intends to do so, companies may require them to have worker’s compensation.
They may not hire their services if they do not. Thus, if an accident occurs while the worker renders services to the company, the company does not have to cover the expenses because the worker already has compensation.