Are sole proprietors covered by workers’ compensation insurance in SC?
The answer is it depends. A sole proprietor may be covered by their own workers’ compensation policy or another company’s workers’ compensation policy, depending on whether:
- The sole proprietor purchased workers’ compensation coverage for their company,
- The sole proprietor notified the insurance company that they elect to include themselves as an employee, or
- The sole proprietor is a direct employee of another company and therefore covered by their workers’ compensation policy.
Sole Proprietors May be Covered by Workers’ Compensation Under their Own Policy
In Ramirez v. May River Roofing, the SC Court of Appeals found that Ramirez, who was a sole proprietor and owner of a roofing company, was not covered by his own workers’ compensation policy because he did not notify the insurance company that he intended to be included as an employee.
SC Code Section 42-1-130 provides that a sole proprietor can be included in their own workers’ compensation policy, but they must notify the insurer of their decision to be included:
Any sole proprietor or partner of a business whose employees are eligible for benefits under this title may elect to be included as employees under the workers’ compensation coverage of the business if they are actively engaged in the operation of the business and if the insurer is notified of their election to be included. Any sole proprietor or partner, upon this election, is entitled to employee benefits and is subject to employee responsibilities prescribed in this title.
Although Ramirez purchased workers’ compensation insurance, and the policy listed him as the “insured,” he was not covered by his own policy because he did not notify the insurer of his election to be included.
The lesson – if you are a sole proprietor and you intend for your workers’ compensation policy to cover you as well as your employees, you must notify the insurance company in writing that you elect to include yourself as an employee.
Sole Proprietors Can be a Direct Employee of Another Company
The Court of Appeals did find that Ramirez had coverage, although it was not his own company’s policy.
At the time of his injury, Ramirez was performing roofing work for another company, May River Roofing. Ramirez claimed he was also an employee of May River, but May River claimed he was an independent contractor.
After analyzing the four factors used to determine whether a worker is a “direct employee” of another company, the Court of Appeals concluded that, in addition to being a sole proprietor, Ramirez was an employee of May River and therefore entitled to workers’ compensation coverage under May River’s policy for his injuries.
Right or Exercise of Control
The Court found that “May River had the right to and exercised control over Ramirez in a manner consistent with an employment relationship,” where:
- Ramirez was required to wear “May River” t-shirts while working on job sites, and
- Their work relationship was exclusive – Ramirez was either not allowed to accept jobs from other employers, or May River “preferred workers like Ramirez to only accept jobs from [them].”
Although there was also evidence that Ramirez had a measure of independence in how he performed his work and that he set his own work hours, the Court found that this factor weighed in favor of finding that he was a direct employee.
Furnishing of Equipment
The Court also found that the “furnishing equipment” factor weighed in favor of an employment relationship where:
- May River provided Ramirez with all materials that he used on his jobs,
- May River occasionally loaned Ramirez equipment,
- May River assisted Ramirez financially when he bought his own equipment, and
- May River provided Ramirez with a branded t-shirt and decal for his truck.
Method of Payment
The Court found that the “method of payment” factor weighed against an employment relationship because Ramirez was paid by the job and not by the hour.
Right to Fire
The Court found that the “right to fire” factor did not weigh in either direction because the Court did not have sufficient information on their employment relationship or contracts.
Weighing the factors together, the Court of Appeals found that Ramirez was a direct employee of May River and therefore covered by May Rivers’ workers’ compensation insurance.
How Can a Sole Proprietor Ensure They are Covered by Workers’ Compensation?
What can a sole proprietor who wants to make sure they are covered by workers’ compensation take from this opinion?
- If you purchase a workers’ compensation policy for your own business, make sure that you notify the insurance company in writing of your election to be covered as an employee, and
- If you primarily do work for another company, be aware of the factors that the courts will use to determine whether you are a direct employee – if the other company controls your work, provides your materials and equipment, pays you by the hour, and has the right to fire you at will, you are more likely to be considered an employee and therefore covered by the company’s workers’ compensation policy.
Your Myrtle Beach workers’ compensation attorney on the Axelrod team will help you to determine whether you are entitled to workers’ compensation coverage, help you to make your claim, and represent you before the workers’ compensation commission.