Independent Contractor Insurances - Necessary or Not?
The area of Professional Insurances seems to be a never ending challenge for organizations that employ independent contractors. The most common questions you should be asking yourself and your company's risk management
department or legal is:
- Do we need to require that our independents need insurances?
- What insurances and at what levels are required?
- What is our risk if they don't have insurances?
Our experiences have taught us that most organizations have varying risk thresholds and will approach this challenge with different requirements. However, here are several items you need to consult with your Risk and HR departments prior to making a decision surrounding you Independent Contractor Insurances Policies.
Q: Does requiring the Independent Contractors help us against Co-employment Risk?
A: As with most of the co-employment legislation and case law, this area is gray. However, in the IRS 20 Point Test for Independent Contractors, items;
Point 15: Payment of business or travel expenses. Independent contractors typically bear the cost of travel or business expenses, and most contractors set their fees high enough to cover these costs. Direct reimbursement of travel and other business costs by a company suggests an employment relationship.
Point 16: Provision of tools and materials. Workers who perform most of their work using company-provided equipment, tools, and materials are more likely to be considered employees. Work largely done using independently obtained supplies or tools supports an independent contractor finding.
A strong argument can be made that if your Independent Contractors are required to provide such insurances as a part of their contract, they then will meet Points 15 and 16 of the IRS IC Test. While Canada does not have such a test, similar requirements have been applied in the case laws.
We will continue to explore insurances this entire week so come back to learn more about the risks that you might have with Independent Contractors, and to take advantage of our Free Risk Reward Assessement, Click Here and answer the questions.