Contractors do dangerous work. It’s the reason why worker’s compensation insurance coverage is more important for them than almost any other type of business.
In this article, I’ll explain everything contractors need to know to buy workers’ comp insurance including:
- What is workers’ compensation insurance for contractors?
- Why do contractors need workers’ comp coverage?
- What does contractors workers’ compensation insurance cover?
- Are workers’ comp requirements the same across all states?
- How can I get workers’ comp coverage for contractors?
- How much does workers’ comp cost for contracting businesses?
- How can I find cheap workers’ comp insurance for contractors?
What is workers’ compensation insurance for contractors?
Workers’ compensation insurance, often shortened to workers’ comp, covers medical costs and lost wages for employees who become injured or ill for work-related reasons. This coverage is required in most states for businesses that have employees.
Many contractors are not full-time employees. Companies aren’t required by laws to provide workers comp insurance for contractors. That’s the reason why it is often in grey area if contractors must have workers’ comp coverage.
Why do contractors need workers’ comp coverage?
The physical nature of the work contractors do — along with the tools and chemicals they use — increases the likelihood of workplace injuries and illnesses. A single serious injury or lawsuit over a workplace incident could be enough to put the typical contractor out of business. For example, if a carpenter has an accident with a nail gun, it could result in hefty medical bills and need for income subsidies to cover time away from work.
So, even though your state likely requires you to get the coverage if you have employees, it’s a smart move for contracting businesses to have this insurance. An added plus is that if you have workers’ comp, your employees can no longer sue you over workplace-related injuries and illnesses, even if it is the result of your negligence.
What does contractors workers’ compensation insurance cover?
Workers’ comp pays for medical expenses and partial missed wages when an employee is injured on the job or develops an occupational illness. Sole proprietors can also get coverage for themselves, which can be a wise move since personal healthcare insurance typically does not pay for work-related injuries.
Workers’ compensation helps pay for an injured employee’s:
- Immediate medical costs, including emergency room expenses
- Ongoing medical care, such as physical rehabilitation
- Partial lost wages while the employee is unable to work
- Job retraining if their injury or illness makes it impossible to return to their job
- Funeral expenses if they die on the job.
It also pays death benefits to immediate family members if a worker dies because of a job-related incident.
How does workers’ comp protect construction and contracting business owners?
If you have workers’ comp coverage, the likelihood that an employee will sue you over a work-related illness or injury is reduced significantly. On the rare chance that you get sued while carrying workers’ comp coverage, it will pay for lawyer’s fees, court costs, and settlements.
Even when a lawsuit is without merit, you could still have to pay for court and legal costs out of pocket if you’re not properly insured.
Are workers’ comp requirements the same across all states?
Definitely not. Every state creates its own laws for workers’ compensation requirements, although they’re based on some national guidelines. For instance, in Pennsylvania, every construction and risky type of contracting business must carry workers’ compensation insurance for its employees, including part-time workers. Businesses in Georgia only need to carry workers’ comp when they have three or more employees. In very few situations does Texas require coverage.
States often have more stringent workers’ comp requirements for construction and high-risk contracting businesses than other types of companies because of the greater possibility of on-the-job injuries. Roofers usually have to buy workers’ comp, whether or not they have employees.
Visit your state’s workers’ comp bureau or agency website to learn about contractor coverage requirements. Or work with your insurer to get the coverage that’s right for you.
How can I get workers’ comp coverage for contractors?
In most states, you can purchase workers’ compensation insurance through state-approved traditional insurance companies or online firms. Many states have state funds that offer coverage sponsored by the state. Getting coverage through these funds is often more expensive than through other types of insurers, but they’re often the only option for companies that can’t obtain coverage elsewhere because of a bad workers’ comp claims record.
Four states only allow businesses in them to get workers’ comp through monopolistic state funds. The states are:
- North Dakota
What types of contractors benefit from workers’ compensation coverage?
Some examples include:
- Carpenters – Learn more at the best business insurance for carpenters
- Concrete workers
- Debris and junk removal businesses
- General contractors
- Handymen – Learn more about handyman insurance and the best handyman business insurance companies
- Home and commercial appliance repair services
- Home inspectors
- Home renovators and remodelers
- Masonry workers
- Paving contractors
- Plumbers – Learn more about plumbing insurance and the best business insurance for plumbers
- Roofers – Learn more at the best business insurance for roofers
- Sheet metal contractors
- Snow and ice removal businesses
Most types of contractors should have — and would benefit from — workers’ comp coverage.
What other types of insurance do contracting businesses get?
Contracting businesses usually carry the following insurance coverages:
General liability insurance
General liability insurance covers expenses related to client injuries that happen on your business property and damage to a client’s property that occurs while you’re doing work. It is probably the most popular coverage for all contracting businesses. If you can only afford one policy, let it be general liability insurance. Learn more at the best general liability insurance for contractors and the cheapest general liability insurance companies for contractors.
Commercial vehicle insurance
Commercial vehicle insurance covers vehicles your contracting business owns or personal vehicles used for work reasons. It typically pays for accidents, vehicle damage, and theft. If you use your vehicle for business purposes, you must have commercial auto insurance. Your personal auto policy will not protect you if you are involved in an accident as you drive for your business. Learn more at the best commercial auto insurance companies and the cheapest commercial auto insurance companies.
Contractor’s tool and equipment insurance
This coverage pays for repairing or replacing a contractor’s tools and equipment if they are lost, stolen, or damaged. If you have valuable and expensive tools and equipment for your contracting business, you should consider this coverage. Otherwise, if something happens to your tools and equipment, it will be costly for you to repair or replace them.
Professional liability insurance
Professional liability insurance covers mistakes and oversights that happen while conducting business. Contractors usually add this coverage to their general liability insurance policy. More and more insurance companies have offer this as an endorsement to contractors general liability insurance policy. Learn more at the best professional liability insurance companies.
Surety bonds help guarantee that your company will fulfill a contract. Otherwise, it reimburses the client for losses related to unmet contract obligations. Learn more about contractor bonds
Builder’s risk insurance
Builder’s risk insurance pays for damages to a structure still under construction. If your contracting business is involved in building new construction and you serve as a general contractor, you need this coverage. Learn more at the best builders’ risk insurance companies.
Your business insurer can advise you on the coverages you need.
How much does workers’ comp cost for contracting businesses?
The amount you pay for workers’ compensation insurance is based on every $100 of your company payroll. Your premium is determined by:
- The type of work done by your employees (classification rate)
- Your experience modification rate (claims history)
- Your payroll (per $100).
The formula to calculate workers’ comp: Classification rate x experience modification rate x (payroll / 100) = premium.
Be sure to compare several quotes to select the cheapest one for your business. Different insurance companies will give you different quotes and rates. Don’t settle on one quote before shopping around with several and compare:
Learn more at the cost of workers comp insurance
How can I lower my workers’ comp costs?
Managing workplace risks is the best way to reduce premium prices.
As I’ve already covered, contractors face high risks due to the physical nature of their work, along with the hazards related to using things like saws, ladders, and toxic chemicals. If an employee suffers an injury or work-related illness, it can result in a costly insurance claim – and an increase in your premium.
Owners of contracting companies can reduce risks by providing safety training and reducing hazards in the workplace. Also, make sure workers are equipped with protective gear, including gloves and goggles. Your workers’ comp insurer can advise you on how to make your workplace safer.
How can I find cheap workers’ comp insurance for contractors?
Even though states provide a formula for determining workers’ comp costs, insurers have different overhead levels, so policy prices vary. It’s always a good idea to get quotes from at least three workers’ comp insurance providers unless your state is one of the four that mandates coverage from a monopolistic state fund. That way, you can compare premiums and find the best deal for your contracting business.
Here are workers’ comp quotes for a one person electric contracting business. Unfortunately, Pie forced me to another workers’ comp provider that I would need to call. Hartford would not provide a quote.
Learn more at the cheapest workers comp insurance for contractors.