Workers’ compensation

Nearly every state requires employers to carry workers’ comp once they have employees, though states differ on how many employees trigger the requirement and whether owners and corporate officers must be covered. Texas is the notable exception, where most private employers can choose not to carry it. Check your state’s workers’ compensation agency.

Premiums are based on payroll and on class codes that reflect the risk of each kind of work, then adjusted for your claims history through an experience modification factor once you’re large enough to qualify. Workers are classified by what they do, so a roofer’s payroll costs more to insure than an estimator’s.

At the end of the policy year, the insurer audits your actual payroll. If you used subcontractors who couldn’t show their own coverage, the auditor may count what you paid them as your payroll. Collect certificates of insurance from every sub.

General contractors usually require subs to carry workers’ comp. If you work alone, check whether your state lets you exclude yourself, and whether your clients will still ask for a certificate. Workers’ comp is part of your labor burden, so build it into your hourly rates.