Business owners who hire independent contractors need to cover these workers’ insurance policies correctly. It can often be unclear how you should handle these 1099 contractors, especially regarding taxes and insurance. For most businesses, general liability insurance will protect your business and independent contractors in the case of an accident.
Workers’ compensation won’t cover most independent contractors. That’s often because they’re not considered full-time employees at your business. Nonetheless, many contractors’ work involves risks, especially in high-injury professions like construction.
Besides the potential for physical injury to the contractor, there’s also a risk for your company related to the contractor’s work. Contractors could damage a client’s property, such as accidentally cause fire or water damage that your company will be responsible for.
There’s a slew of other possible costly accidents that could happen even when hiring the most skilled, most experienced contractors. Without insurance, you could be held liable for the costly repairs associated with an accident involving your contractors.
1099 Contractors and General Liability Insurance
To avoid paying out of pocket for a plethora of accidents that may occur when working with a contractor, contractors insurance is often the best way to go. This policy is a type of general liability insurance designed to protect businesses that hire independent workers, including 1099 contractors.
Any business can offer their independent contractors, also called 1099 contractors, general liability insurance. This type of coverage protects both the contractor and the company in the case of a work-related accident.
Any employee you hire may have an accident on the job that harms themselves or the clients’ property. That’s also true for independent contractors. Contractors insurance will protect both yourself and your contractors if a contractor causes:
- Bodily injury or property damage,
- Reputational harm, such as slander or libel, or
- Advertising injury, such as copyright infringement.
To insure a contractor, add the individual to your general liability policy as an additional insured person. While it may be costlier to do so in the short-term, this can save your company in the long-term in the case of a work-related accident involving a contractor.
Running the Risk
There are several reasons why your business should take covering your 1099 contractors seriously. Not doing so can put you in a tight spot if there is an accident involving your contractor. You could be held reliable for any damage that an individual causes both to themselves or your clients’ property without the proper insurance.
The last few years have shown many small businesses how risky it can be to not properly insure independent contractors. Since 2015, the U.S. government has cracked down on how companies both classify and protect independent workers.
This governmental involvement has made it easier for independent contractors to sue employers if they are injured on the job. Additionally, the government has started auditing businesses that hire many independent contractors at higher rates since the crackdown began.
There are many reasons you should consider insuring your private contractor. However, there are a few key reasons why not adding contractors to your liability insurance may prove detrimental in the long run:
- Losing Client Opportunities – Often, clients your business work with may ask you if the independent contractors you’ve hired to work with them are insured. Often, clients won’t want to take on the risk that, if something happens on the job, your business’s insurance won’t cover the costs. As such, not having insured contractors may mean your business loses clients who will only work with insured contractors.
- The High Cost of Injuries and Lawsuits – Accidents happen, and if that accident results in an injury, you’ll want insurance to help pay for medical bills and any potential lawsuits. No matter who’s found at fault, your business can face a severe financial burden if an uninsured contractor is involved in an accident that results in bodily harm.
- Paying Out of Pocket for Damage Caused to Client Property – Any time a contractor or full-time employee works on a client’s property, there’s a risk that the individual may damage that property. While damage full-time workers may cause to clients’ property is already covered, that’s not true for independent contractors.
Insuring Your Business’s Contractors
While it may be tempting to skip coverage for your independent contractors, it’s crucial that you step back and reconsider. It will indeed cost more to add contractors to your general liability insurance. However, in the case of an accident, it’ll cost you even more if you don’t decide to insure your independent contractors.