Sole Proprietor Under Contract Requiring A Work Comp Policy
Can a sole proprietor be required under a contract to have a workers compensation policy even though he or she is not required to have a policy under the Wisconsin Workers Compensation Act?
Yes, a contract may require a sole proprietor to a have workers compensation insurance policy even though he or she is not required to have a policy under the Act. Contracts often stipulate that a sub-contractor (sole proprietor) have workers compensation insurance and require a Certificate of Insurance as proof that the coverage is in place. The Workers Compensation Division has no jurisdiction over contract stipulations that require worker’s compensation insurance.
What are the options available to a sole proprietor that is offered a contract that requires him or her to have a workers compensation insurance policy? There are three options available to a sole proprietor that is offered a contract that requires him or her to have a workers compensation insurance policy.
- The sole proprietor may voluntarily purchase a workers compensation insurance policy to cover his or her own work-related injuries and illnesses. It is necessary to have the policy endorsed to name the sole proprietor as a covered employee. All workers compensation policies exclude the sole proprietor unless specifically endorsed to include them. The yearly payroll used to determine premium for a sole proprietor electing to be covered by under a worker’s compensation policy is currently $38,688.
- The sole proprietor may purchase a “minimum-minimum premium policy”. A minimum-minimum premium policy covers any potential exposure (employees) a sole proprietor may have, but it does not cover the sole proprietor. The maximum cost of minimum-minimum premium policy is currently $900 (based on the type of business being insured, the cost may be less). Under the Wisconsin Insurance Basic Manual Rules, if the designated minimum policy premium is greater than 20% of the earned payroll, the minimum premium is 20% of the earned payroll, but not less than the policy expense constant (the expense constant is the cost of producing and servicing the policy.) When a policy is audited, if there has been no earned payroll (no employees) during the policy year (since 20% of $0 is $0), the actual minimum charge for the policy is $220 (the expense constant). The sole proprietor will receive a refund of any premium amount paid in excess of the $220. Example: $900 (initial premium), minus $220 (expense constant) = $680 premium refund.
- Do not accept the contract.
You may download the entire document pertaining to sole proprietors and workers compensation here:
Sole Proprietors Under the Wisconsin Workers Compensation Act