More former employee status jobs are
becoming independent contractor assignments. Companies have various reasons for
this transition, liability is the main reason. Whether liability for the
employer's share of social security or completed operations, employers decrease
risks through changing employee status to independent contractor.
Liability, however, flows upstream. If the contractor has insufficient funds or
insurance, the liability transfers to the engaging company.
The engaging company must require certificates of insurance (proof of
insurance) from the independent contractor. Workers' compensation, automobile
liability and general liability are often required.
Some companies charge a percentage of the contract if insurance is not in
place. This policy is flawed.
1. Injuries incurred under workers' compensation affect your experience modification
for three
years. You will pay for your contractors claim for three years.
2. General liability and automobile coverage use experience rating as well.
3. Your capacity to obtain insurance may be limited with the use of under- or
un-insured.
What can you do to cure some of these issues?
Ask for a certificate of insurance for umbrella liability. Umbrella broadens
underlying coverage, assures primary limits which are adequate, and acts as
primary insurance for unusual claims.
Require contractor principles to be insured by workers' compensation - have
them opt in.
Verify all information with a phone call to the agent's office or insurance
company. This technique may sound a bit untrusting, but the financial health
and ability to obtain insurance of your company demands thorough verification.
Independent contractors by definition are independent. You cannot control their
employees or them. Demand verifiable certificates of insurance or do not allow
the contractor to work for you.
Do not accept the transfer of risks from your subcontractors or independents to
you. The long-term costs to your company can be devastating.