IT project managers often hire subcontractors to work on a project, but who pays for the independent contractor's insurance and what insurance do they need to get?
The answers to these questions are complicated because they depend on a number of things, including…
- The language in your contract.
- The language in the subcontractor's contract.
- State Workers' Compensation laws (Unsure about your state regulations? Check out this resource on state Workers' Compensation laws for small businesses).
- The budget of the project and how feasible it is for an independent contractor to purchase coverage.
- Your insurance policy.
Depending on the situation, you might have to cover your contractors, or they might have to purchase their own insurance. The first thing to remember is that you should always check the language in your contracts before choosing an insurance policy.
To start with, examine your legal obligations to the client. Many clients require that their contractors purchase a specific amount of E&O Insurance and specify that everyone working on the project must be covered.
For this article, we'll assume that's the situation and you need to make sure each contractor is covered by a suitable policy. Let's take a look at what options IT project managers have.
Independent Contractor Insurance: What Policies May Be Required
Check your contracts to see which kinds of business liability insurance you and your contractors are required to have. Some required policies might be…
- Errors and Omissions coverage.
- General Liability Insurance.
- Workers' Compensation Insurance.
E & O and GL Insurance are two of the most commonly required insurance polices. Sometimes, Workers' Compensation Insurance is not required for independent contractors, only for full- or part-time employees. Double-check state WC laws and your contracts to make sure.
Do IT Contractors Buy Their Own Insurance?
When you’re the managing contractor on a project, you'll have to make sure that subcontractors have adequate business insurance. You can either require them to purchase their own coverage, or you can cover them as an "additional insured" on your policy.
When you add someone as an "additional insured" to your E & O policy or other insurance, you absorb their liabilities. Usually, by paying a small fee to your insurance provider and signing an official agreement with your subcontractor, you can list that subcontractor on your Certificate of Liability Insurance and cover their liabilities for the duration of the contract.
If your contractor doesn't have their own insurance (or can't afford it), adding them as an additional insured often makes a lot of sense. It's relatively inexpensive and simple to do.
Technology Insurance Tip: How To Know If Your Contractors Are Really Covered
Let's say a subcontractor tells you that they have an Errors & Omissions and General Liability Insurance policy. How do you check to make sure they’re really covered?
Certificates of Liability Insurance (sometimes also called a Cert or Proof of Insurance) are one-page documents issued by an insurance company that show a contractor's coverage, the policy's limits, the expiration date, and other important information.
If your contractors purchase their own insurance, ask for a copy of their Certificate of Liability Insurance and keep it in your records. You might also be required to send a copy to your E&O Insurance provider.
(To learn more about Certs, read our blog post "What Is a Certificate of Liability Insurance?").
The Takeaway: Know Your Contracts
The most important lesson to take away from this article is that, as project manager, you need to remember that each insurance situation is different because each contract is different. You'll have to adjust your insurance plans to meet client requirements, state laws, and the unique characteristics of your independent contractors.
But by following these four steps, you can ensure that independent contractors have coverage that satisfies the requirements of their contracts.
- Check your contract to find our what your client requires from its contractors.
- Talk with subcontractors and ask them if they have adequate coverage.
- If an independent contractor claims they're covered, ask to see a copy of their Certificate of Liability Insurance.
- If they don't have insurance, ask that they purchase their own coverage or add them to your policy as an additional insured.
Though coordinating insurance coverage isn't the most glamorous job, it's a vital part of project management. If you don't take care of insurance matters, you could be sued for mismanagement. Instituting industry standard practices can cover your risk and help you manage your projects efficiently and professionally.
To learn more about small business insurance, check our these free sample insurance quotes on the kinds of policies IT contracts often require.
