It's safe to say that no state has really solved the independent contractor/sole proprietor conundrum. Rather than require comp coverage for all workers, most states either exempt sole proprietors from coverage or make it optional. As a result, many small construction sites are full of "sole proprietors." No one works for anyone. Thoeretically at least, no one is in charge. Nonetheless, the building goes up on schedule. And the final cost of construction is far less than similar job sites where all workers are protected by comp. If one of these sole proprietors is severely injured, the state will try to pin the cost on a general contractor, if they can find one. Otherwise, the state fund usually pays for the benefits.
Solving this problem creates new problems. In Massachusetts, the attorney general issued an advisory with a catch-all definition of "independent contractors" that is so broad, it includes virtually everyone. As a result, when general contractors cannot produce certificates of insurance for subcontractors, the cost of these subs is added to the payroll for calculating comp premiums. The cost of doing business goes up substantially.
In Delaware, they passed a law a few years ago requiring coverage for everyone, including sole proprietors. That is the cleanest and most comprehensive way to solve the problem. Alas, it's also fraught with political risk. The subsequent uproar led legislators to back track and repeal the law.
Now, Tennessee is moving ahead with a new law that mirrors the one repealed in Delaware: limited to construction workers, the law requires coverage for everyone, including sole proporietors. Cost estimates for individual policies range from a few hundred to as much as $6,000. The latter figure is pretty daunting to a part-time, semi-retired craftsman who earns less than $25,000 a year.
The Tennessee legislature is considering some modifications to the law, which is scheduled to go into effect on December 31, 2009. They may allow for cheaper-than-usual policies that include high deductibles. Or they might let sole proporietors off the hook, if they can show that their own health insurance will cover workplace accidents. (Now there's a cost-shifting measure that will create some interesting dialogue on the health care side!) The legislature has the right idea: find a way to make comp affordable to people who cannot afford much in the way of premiums.
With the legislature not scheduled to meet again until mid January, the law will go into effect as written on the last day of the year. Solve one problem, create another. Welcome, once again, to the ever-complicated world of workers comp.