Understanding the Risks with Uninsured Independent Contractors?
In the continuation of our series this week about Independent Contractors and Business Insurances, we wanted to approach some of the issues you need to consider why Independent Contractors need to be insured.
Very often Human Resources and Procurement Departments are called upon to "waive" the insurance requirements of an Independent Contractor usually due to costs of the policy to the individual. This is, of course, if any actual corporate insurance requirements exists. The challenge here comes when the hiring manager wants the contractor, wants to save money and/or needs the "expertise". They don't care or understand the risks...but they should.
"Everybody's Happy Until Someone Get's Hurt."
Oh, the wisdom of our parents. This saying hold true here when the insurance requirements are not upheld and the uninsured Independent Contractor make a mistake or does something wrong. Maliciously or Not. Below are a couple of true cases that will illustrate our point...of course the names have been changed.
CASE 1: XYZ Corporation uses 4 Light Industrial Workers referred through a Warehouse Manager of XYS Corp to assist with the transportation of old laptops and desktops to the warehouse for inventory and asset documentation. Human Resources is not notified and procurement has no insurance requirements in place. The 4 workers loaded a truck with over $4MM of computer hardware equipment that, unfortunately, never made it to the warehouse. Matter of fact, nobody knows where the hardware went. And, yes the workers had no insurances. They were prosecuted by the law but the assets were never recovered and the $4MM was a total write off.
CASE2: ABC Inc. brings on a specialized Independent Contractor Database Analyst to help with a data cleansing project. Two weeks into the project the database is blank, the data is lost. To make matters worse the back-up was malfunctioning without any knowledge of Corporate IT. The cost to recover the data and recreate the database was over $2MM. And, yes, the contractor didn't have insurances. Since they were independent there was no recovery of the loss to ABC Inc of the money required to recreate the data loss.
I trust that these two cases represent what can happen if your organization is not insured properly when employing Independent Contractors. If you have a similar case that you could share with our readers, please comment with us below. If you want to know if your firm is at risk, please take our Free Risk Reward assessment by clicking on the link.
Tomorrow we'll cover how Human Resources Management needs to partner with Indirect Procurement Services Departments to make sure Independent Contractors aren't trying to "get their cake and eat it too".