Workers Comp for Sole Proprietors
So, we all understand the basics of Workers’ Comp. It is a policy that the State requires employers to pay for to cover medical expenses of employees for injuries sustained at work. The concept is, that the employer puts people in harms way; they need to provide a policy to cover associated injuries. The State is primarily concerned with the employees, as such, a business owner can opt out of coverage provided they “dot their I’s and cross their t’s. So why is it that a sole proprietor who has exempted themselves from coverage is being requested to provide Workers’ Comp coverage?
This is a familiar scenario many sole proprietors & small business owners find themselves in. The core reason is actually simple. In most states, the chain of responsibility works as follows. A worker is precluded from suing their employer for medical costs provided a Workers’ Comp policy is in place. If a Subcontractors coverage is not triggered or is not there, the General Contractor’s Workers’ Compensation is forced to respond. If there is none, the Worker has a perfect claim against the property owner.
Risk managers are looking to tie up loose ends before they unravel. When you win this job, they do not care that you have no employees. For one, you can hire one and neglect to buy coverage and expose them. Secondly, even if you hired a 1099 outside contractor who failed to have coverage, they have been exposed. They want to ascertain that if the scenario arises, the worker will be protected.
So you now call you agent and tell them you have no payroll and you include yourself within the coverage. Regardless if you are on the payroll system or not, in most States, the Carrier is within their right to assume a payroll for you (appx $50,000). If you are a trade contractor, that can be thousands of dollars per year; however, you will not know about this at inception… You will learn about it at annual audit when there is no way to fix it.
If you tell them you have no payroll & you are Excluded, then you are advertising that you have a tiny operation, no budget, and will be sticking the Carrier with a claim in the short term. As a result, most carriers will decline.
You need to have realistic and appropriate estimated payroll; which will result in an estimated premium that is a few dollars more than the broker who sold you something to quick. However, it will come with no surprise additional premium upon audit.
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