In today’s “gig economy” if your business is using project-based contractors instead of hiring more employees, does your business insurance cover them?
Contractors vs. Employees
Different policies define contractors (or SUBcontractors) and employees in different ways. There can be big differences in the coverage afforded by the policy between damage or injury caused by a subcontractor or by an employee and it is important to make sure you are properly covered for your particular situation. Also, depending upon the situation, a person you would consider to be a contractor may very well be ‘deemed’ to be an employee by either the Department of Labor or the Workman’s Compensation Board.
Which Business Insurance Policies Are Involved with Contractor Contracts?
The three business insurance policies you need to review when hiring a contractor are your workers’ compensation, general liability, and errors and omissions. Each of these business insurance policies plays a role if something goes wrong on the job.
Worker’s Compensation Insurance
When working with contractors there are two main issues to consider regarding worker’s compensation;
1. If a contractor gets injured on the job and you do not have a workman’s compensation policy in place this might be a complicated situation. If the workman’s compensation board deems that contractor as an EMPLOYEE, then you are subject to fines and penalties for not having a workman’s compensation policy in place. If you DO have a workman’s compensation policy in place, then if the contractor is injured (and deemed to be an employee) they may be covered under your policy, avoiding any problems or fines.
2. The good news is if you have a workman’s compensation policy in place, you are complying with the NYS workman’s compensation law. But, from a rating standpoint, if the contractor does not have their own workman’s compensation policy, then what you pay to them will be included in your payroll, and you will be charged for them upon premium audit on your policy.
This is a great time to call your business insurance agent. Worker’s compensation regulations differ slightly in some states, and in most cases, its relevant to the size of the contractor’s businesses.
General Liability Business Insurance
Your general liability insurance may include exclusions for injury to a subcontractor, or damage or injury caused by a subcontractor. If you have signed a hold harmless and indemnification agreement with your customer, you might be contractually liable to your customer if THEY are sued by the subcontractor. This is another common exclusion.
While researching and vetting your contractors you should require that they carry their own general liability insurance. Sometimes having a contract with the subcontractor is not enough. The contract may make them liable for their injuries or damages they cause, but if they do not have any insurance to actually pay for this, it may not protect you.
Make sure you get a certificate of insurance before you sign the project contract and review it with your agent. You should also require that they list you as an additional insured under their policy. Usually, the additional premium for this is minimal and it provides you with another layer of protection.
Errors and Omissions Business Insurance
If you are a professional and your ‘product’ is actually your advice, then you probably also carry Errors and Omissions Insurance. Errors and Omissions insurance is also referred to as Professional Liability or Malpractice Liability.
Under these policies, the definition of employee or subcontractor may be very different than under your General Liability policy. If you are subbing out some of your work, you should make sure the subcontractor has their own professional liability or check with your agent to see if your policy would protect you if you are sued for the subcontractors' work.
Get it Right! Call Your Business Insurance Agent
There are plenty of examples that fit each scenario, and your business insurance agent is the only person who can probably think of more of them than you can. Their years of experience is one of your business’ greatest assets.
When you’re getting ready to sign on the dotted line with a contractor (or anyone else for that matter) take the time to have a conversation with your business insurance agent to make sure your business is covered for all those possible scenarios!