If you’re a growing business, you’ve probably considered whether you should hire a new employee or engage a contractor. For many businesses who are cash or time poor, hiring a contractor may be the more appealing decision. But from an insurance perspective, is it the right one?
Imagine the following scenario: you hire a plumber to fix a leak at your workplace, but he solders a pipe and your building catches fire. What was a $200 job results in $1 million in damage. You go after the plumber only to discover he doesn’t have the right (or any) contractors insurance or assets you can get your hands on. If you have the right property insurance you may receive a pay-out. But what if it only covers you up to $500,000? Chances are you’ll be left with a shortfall and that could sink your business.
In this case, what should you do?
If you’re still thinking of hiring a contractor, you should ask to view their insurance policies – that extra effort could save you substantial amounts of money should things turn for the worse.
Insurance policies to look out for when hiring contractors
It depends on the work being accomplished, but a humble suburban tradesman will often have Public Liability Insurance, Products Liability Insurance, Contract Works, Professional Indemnity Insurance and Workers’ Compensation insurance.
Err on the side of caution when checking that any contractors or sub-contractors you use show you all the relevant policies to provide proof, so you are unlikely to be left on the hook if they, or one of their team, starts a fire or falls over and breaks a leg.
Note that every situation is unique. Crucial Insurance clients can contact us any time for guidance on what insurances to typically search for from contractors.
Employee or sub-contractor?
It’s a question that causes confusion but one that business owners need to be clear about to avoid insurance issues in a worse-case scenario.
In an ideal world, an employee works in the business while sub-contractors run their own business and supply a service. For example, a customer service representative in an office could be an employee while the digital marketing consultant who helps with the company’s marketing could be a contractor or sub-contractor.
In reality, however, it is not so clear cut: a person could be a contractor for tax purposes but still be deemed an employee when it comes to workers’ compensation insurance. If someone a business owner thinks is a sub-contractor can be classified as an employee (under any circumstances), that business owner has a lot more liability than they realise, should anything go wrong.
Each state and territory has its own rules around the demarcations between employees and contractors/sub-contractors for workers’ compensation, so checking the relevant websites is a good place to start. Then seek legal advice if you’re worried you might have an employee on your hands rather than a contractor or subcontractor
As an employer, what should you then do?
As well as having an understanding of your contractors’ insurances, it’s best to have any contractors or sub-contractors sign a relevant contract of services before they step foot on the premises.
Contracts need to be properly drafted and spell out the chain of liability, to give both parties legal protection. All parties – employers, contractors and sub-contractors – should pay special attention to indemnity clauses that can shift all liability for death, injury or loss onto them.
One common but important exclusion is contractual liability. This can exclude insurance cover if you sign a contract that reduces your rights to less than they normally would be at common law (for example, if you agree in a contract not to sue a contractor for their own negligence).
Although taking extra precautions may seem inconvenient for the time poor, it is a necessary step. If you need help with easing the burden of the complications of insurance, our team of expert business insurance brokers are always happy to help.
Information used here was based on an article by Steadfast.
This article was written by Tony Venning,
Managing Director at Crucial Insurance and Risk Advisors.
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