Do I Need Workers' Compensation Insurance?
Whether or not you need Workers’ Compensation Insurance, the policy that can help pay for employee occupational injuries and illnesses, depends on several factors. For starters, the state where your tech business is located matters because Workers’ Comp laws are governed at the state level.
And even if you don’t have employees, you may still need the policy if…
- You hire contractors and your state requires Workers’ Comp coverage for them.
- Your clients require contractors they hire to carry Workers’ Compensation Insurance.
Workers’ Comp: It’s a State Thing
As we mentioned above, the laws governing Workers’ Comp Insurance vary from state to state. In some states, you are required to carry Workers’ Compensation Insurance as soon as you hire your first employee. In other states, you could be off the hook until you hit four or five employees. And Texas makes Workers’ Comp coverage optional.
That seems straightforward enough, but you may run into trouble if you don't have employees but do hire subcontractors to work on projects.
Your state laws also decide whether a worker is a contractor or an employee. Many IT business owners have been unpleasantly surprised to discover the worker they considered a contractor is technically an employee, according to their state. Check out “The Single Biggest Mistake Tech Businesses Make when Working with Contractors / Freelancers” to read about one business owner’s run-in with worker misclassification and the resulting fallout.
To learn more about the Workers’ Compensation Insurance requirements that may impact your business, select your state from the menu below.
Even if Your State Doesn’t Require You to Carry Workers’ Comp, Your Clients Might
To protect their business from potential injury claims, many business owners require contractors they hire to carry their own Workers’ Compensation Insurance. The reason is simple: they don’t want to be sued or potentially have a claim filed on their own Workers’ Comp Insurance policy.
The law in many states says that unless a business can prove that its contractors and subcontractors carry their own Workers’ Comp coverage, they will automatically be covered under the hiring company’s policy – and at its expense. Because your clients prefer not to pay to cover their contractors (i.e., you and any of your subcontractors), they may require you to have your own coverage before they bring you on for a project.
So What’s the Deal with Employer’s Liability Insurance?
Most Workers’ Compensation Insurance policies also include coverage called Employer’s Liability Insurance, which can help pay for your legal expenses when an employee sues your business over a work illness or injury.
In a nutshell, here's how it works: Workers’ Comp benefits pay for an employee’s medical expenses, and usually, that resolves the issue. But if that employee sues you, claiming their injury was the result of your negligence, the Employer’s Liability portion of your coverage can help pay for your legal expenses.
For more information on Workers’ Compensation Insurance, be sure and read our article “Top 10 Workers’ Comp Insurance Questions.”