Risk management tools for independent contractors

liability insurance warning signFrom the Springfield News-Leader, Richard Ollis, the CEO of a risk management, employee benefit and insurance firm, discusses ways to mitigate the risk of engaging with independent contractors.  He reviews the guidelines for determining if a worker qualifies as an independent contractor and writes:

“Due diligence and consulting by legal, tax and insurance professionals may be necessary to ensure an appropriate employment or independent contractor relationship is established. The penalties for misclassifying employees as independents can be severe. The IRS has collected billions of dollars in Social Security back taxes since the 1990s due to increased scrutiny of employment relationships.

Once the appropriate relationship is established, an agreement with insurance requirements is normally necessary. Clarifying the scope of the work and properly structuring the liability is important if someone is injured, property is destroyed or financial damage occurs. This is also applicable to households who hire “independents” for yard work, maintenance, child care or house work. Many overlook this important consideration when hiring an independent contractor. A business or household could be held financially responsible for a significant injury or accident caused by the independent contractor. The agreement should cover the general scope of the work, time to complete the work, cost and penalties (if applicable). Including an indemnity clause to outline who is responsible for negligence and holding the business harmless from the other party’s actions can also be important.

To properly manage the risk, the independent contractor should be required to provide workers compensation, general liability and auto liability. The agreement should state the necessary limits of liability. Normally a good starting point is $1 million for each coverage. A professional liability policy may be appropriate and include coverage for sexual and physical abuse in professional independent contractor situations, such as child care or adult care….”

Read the full story at Risk management tools for independent contractors [link no longer works]

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