As the economy picks up in 2015 we are seeing more jobs which equal more risks especially when it comes to uninsured sub-contractors. These uninsured sub-contractors can create big surprises for your business when your General Liability and Workers Compensation policies are audited. Insurance companies are starting to view these contractors as your employees.
Insurance companies have received more and more claims from these uninsured sub-contractors, but have not been collecting premiums for these claims. Many businesses misclassify employees as independent contractors to avoid the extra costs of payroll taxes, insurance, and benefits. Businesses expose themselves to huge liabilities by making these misclassifications. While this might save on costs in the short term, it’s only a matter of time before a problem arises and the risks involved are great.
If injuries are sustained to sub-contractors or others who perform work for you, then you may be responsible for those injuries unless they have their own Workers Compensation coverage. You could also be responsible for property damage claims caused by these people unless they have their own General Liability coverage. To avoid facing financial responsibility for injured workers, it is important to require all sub-contractors to carry their own Workers Compensation and General Liability insurance.
To truly be considered an independent contractor,
- The individual should have a valid business permit/license and regularly contract out his/her services to other businesses.
- The individual should have control of his work schedule.
- The individual should provide his own equipment and tools for his/her services.
- The individual is given a description and expectation of the work to be completed, with little or no supervision.
- The individual should market their services to the general public
This questionnaire can help you determine whether your sub-contractor is an independent contractor or an employee.
A business can do a number of things to protect themselves from the actions of a sub-contractor:
- Have a written contract stating the individual is an independent contractor, not an employee, and the individual will not be provided Workers Compensation coverage by the business owner. This written contract also should state the individual must have General Liability coverage with these same limits that you have. You should also ask that your company be named as additional insured under the General Liability coverage.
- Obtain and file a “current” certificate of insurance as evidence that the independent contractor has sufficient Workers Compensation and General Liability coverage. These certificates must be provided at the time of your audit. If they cannot prove Workers Compensation and General Liability coverage, you should be ready for an audit that will include them as an employee.
While these relationships are commonly found in the construction business, they are also found in other industries. To discuss this topic in detail, please contact your Allegheny Insurance Services Agent to ensure that you are in control of your insurance program. The more informed you are the more control you have!