Do you have any idea whether your independent contractors are properly insured? You should. Uninsured contract workers expose your tech business to the same degree of risk as if you carried no insurance at all. (For more ont the risks independent IT contractors face, check out "Independent Contractors: There's No Place Like Home... for IT Business Exposures.")
Think about it from a client’s perspective: if you go to a restaurant and order soup and it comes out cold, you don’t care whether the waitress is just a temp. It doesn’t matter to you if the cook is an independent contractor hired just for the evening. All you know is that you expected hot soup, and the restaurant didn’t deliver it.
Your clients are in exactly the same situation. They're ready to give your IT firm all the credit for a job well done. But they're also ready to hold you responsible for any snafus. The question is whether you're in a position to hold your independent contractors financially responsible for any damage they cause.
Insurance Coverage to Demand from Your Independent Contractors
Many tech businesses rely heavily contractors. There are plenty of reasons to take advantage of independent workers rather than hiring full-time employees:
- Workload.
- Specialization.
- Hardware / software availability.
- Location.
- Savings in labor costs.
- Flexibility in hiring and firing.
- Reduced liability.
But that last point can be a double-edged sword.
A fully insured independent contractor not only reduces your workload but also reduces your potential risk: it’s like inviting over a strong friend with great health insurance to help you move heavy furniture: not only will they lighten the load, but you know they’ll be covered if they throw out their back. What's surprising is how lax many small firms are when checking the insurance credentials of the contractors they hire.
Your operation is just as responsible, legally speaking, for independent contractors as for regular employees, and that includes responsibility (liability) for potential harm they cause. Your contractors are prone to the same liabilities you face: software glitches, malicious code, badly worded instructions – the usual suspects. It's good business practice to require that your contractors carry the same protection you require for your IT operation.
It's only common sense, then, that a contractors should protect their business (aka themselves) no differently than you protect yours. An independent contractor's insurance coverage not only demonstrates that they're looking out for potential employers, it also displays their level of professional integrity. It's perfectly legitimate for you to require your contractors to carry any or all of the following, depending on the work involved:
- Workers' Compensation Insurance.
- Errors & Omissions Insurance.
- General Liability Insurance.
- Commercial Property Insurance.
- Umbrella Liability Insurance.
- Cyber Liability Insurance.
No one would hire drivers for a delivery service without adequate car insurance. Bringing on IT contractors is no different.
“Additional Insured” Status for Independent IT Contractors: Do You Need It?
There may be times when the contractor you plan to hire doesn't carry a policy you require or their amount of coverage is inadequate for a particular assignment. In that case, you have the option of adding a contractor as an "additional insured" to your existing policies. This maneuver lets your contractor enjoy coverage from your insurance provider under the policies you already have in place.
To add an additional insured…
- Review your existing coverage with your insurance agent.
- Find out whether or not independent contractors are covered by your standing policies.
- Ask about all the available options, including protection that would be in force during the life of the policy or for just a single event / contract. The option of adding an additional insured can provide your firm the perfect stopgap measure.
There's no way to completely avoid liabilities, especially when the court system is constantly trying to keep up with ever-changing technology. Managing risk by protecting your IT business assets with the proper insurance is critical, and that includes ensuring that any independent contractors you work with have thorough coverage as well.
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