Most well informed nonprofit owners and managers know they need numerous insurance policies to protect themselves and their organization from a variety of lawsuits and claims. Some of the most common are general liability insurance and workers’ compensation insurance. Yet many fail to realize how these policies inform the decision-making process involved in hiring independent contractors.
General Liability Insurance and Independent Contractors
Nonprofit and for-profit businesses alike often view insurance through the lens of protecting their employees and their assets. However, failing to address the limitations of insurance in regards to independent contractors can leave gaping holes in insurance coverage. For example, if an employee injures a customer while performing his or her job, that company’s general liability policy would cover the event.
This is not always the case for independent contractors. Some general liability policies exclude coverage for independent contractors. If the independent contractor caused the customer’s injury, the nonprofit may not have any recourse to manage the claim. Another independent contractor exclusion occurs when a business hires another business who in turn hires an independent contractor. If the general liability policy excludes defense against lawsuits by independent contractors, the company that hired out the business employing the contractor may not have any legal recourse even though they did not hire the independent contractor themselves. That is why it is vital to discuss policy exclusions with an agent or broker to avoid coverage gaps. Variance in costs between employees and independent contractors must be weighed with variance in the policies needed to cover these distinct worker categories.
Defining an Independent Contractor
In decades past, it was easy to distinguish an employee from an independent contractor. Employees’ paychecks displayed withholdings whereas independent contractors’ checks did not. Now, the matter is multifaceted. The following are general guidelines for classifying employees and independent contractors.
- Has an enduring relationship with an employer
- The employer provides a significant degree of tools, materials, etc. for the worker to do his or her job
- Can quit at any time without suffering liability
- Must follow instructions regarding when, where, and how to work
- Receives training from his or her employer
- Performs the same work for multiple businesses or nonprofits
- Furnishes his or her own tools, materials, etc. and can employ, oversee, and pay assistants
- Can incur a profit or loss by quitting a job
- Creates his or her own work schedule and work hours
- May have a business license
To learn more about how these classes differ and how they’re affected by your liability insurance coverages, contact Steelbridge.