If you've been working in the construction industry for years, you may be tired of answering to a supervisor and could be considering the launch of your own general contracting business. While this can often be a lucrative move, especially for those whose bodies are beginning to feel the wear and tear from years of working on construction sites, there are some factors you'll want to take into account before pulling the plug on your day job. Workers compensation coverage is one of these factors, as the cost of this coverage (or the penalties for going without it) could make or break a fledgling business. Read on to learn more about the challenges your construction business may face when it comes to workers comp insurance, as well as how you can address these issues while keeping your new business afloat.  

Do you need to purchase workers compensation insurance?

Workers compensation is a type of employer-paid insurance designed to help cover medical costs, lost wages, and other expenses arising from a work-related injury. While a number of workers compensation insurers sell policies across the nation, each state sets its own laws and standards when it comes to required levels of coverage. For example, some states require all employers to carry this insurance, while others waive this requirement if a business can show it has enough in liquid assets to help pay injured employees' costs without insurance. Premium prices are based on the industry, the size of the employer, the number of previous claims by this employer, and several other risk factors. In general, the larger or more dangerous the business, the higher the workers compensation premiums will be.

If your new business is shaping up to be a sole proprietorship, it's likely your state won't require you to carry this insurance on yourself. You may opt to do so anyway, particularly if you can't afford to pay your household bills after an injury sidelines you for a few weeks. In most cases, the cost to insure only yourself will be minimal. 

For businesses that employ one or more non-family members, it's likely your state will require you to carry workers comp coverage on all employees. Failure to adequately insure your business for its employees' on-the-job injuries could subject you to heavy fines or civil penalties that might shutter your business, as well as leave you open to a potential personal injury lawsuit if you find you don't have enough to compensate an employee for his or her injuries.

It's important to keep in mind that this coverage applies to employees only. In the construction world, it can sometimes be difficult to discern employees from contractors -- but unless you issue W2s (rather than 1099 forms) to your workers at the end of the tax year, you're not officially an employer and aren't required to take out insurance on those who receive 1099s.

How can you get the best deal on workers compensation insurance? 

Employers in the construction business are often referred to as "hard to place" insureds -- because the construction industry carries a higher risk of on-the-job injuries than other fields, it can be more difficult to find insurance carriers willing to write these policies. 

As a result, it's usually in your best interest to partner with a commercial insurance agent who can help run a variety of quotes to pull together the best deal. This partnership is especially important for those who haven't previously dealt with workers comp insurance -- because these policies are essentially an amalgam of health insurance, disability insurance, and lawsuit protection, they can be complex. Having a dedicated agent available to explain your choices and bounce off ideas can be invaluable. Contact a company like Tailored Solutions for more information.