Pick up any major business publication and there's a good chance you'll see an article about the growing army of freelancers working in the United States. More Americans than ever have 1099 employment.
In its 2020 Report [PDF], tax-prep company Intuit predicts that 40 percent of America's workforce will be contractors by 2020. Online magazine Slate reports that we're currently at 34 percent. The average tech business may hire subcontractors to help simplify bookkeeping, HR, and project management.
To ensure your business can safely take advantage of cost savings and flexibility offered by hiring subcontractors, let's review tactics to manage the risks they introduce.
1. Invest in Technology Subcontractor Insurance
If you hire a contractor from a staffing agency, the agency may provide insurance for its referrals. This coverage can include state-required Workers' Compensation Insurance. However, there's a good chance any subcontractor you hire won't have Professional Liability Insurance. If that's the case, you should either require subcontractors to carry their own liability insurance or ask your agent about including them as additional insureds under your policy.
2. Review Client Contract Requirements
In addition to requiring Professional Liability coverage, your clients may want you and your subcontractors to have General Liability Insurance. General Liability may cover lawsuits over third-party bodily injuries and accidents. If you're working onsite for a client, they may want financial protection in case you break something or cause an injury.
3. Check the Certificate of Liability Insurance
How do you verify that your subcontractors have insurance? Simply ask to see a contractor's Certificate of Liability Insurance, which is the proof-of-insurance document each insurance company provides for its insureds. See "What Is a Certificate of Liability Insurance?" for more information on how insurance certificates work.
4. Start Using Subcontractor Agreements
We’ve found that as many as 46 percent of IT professionals who apply for insurance with us don’t have a formal employment agreement with their subcontractors. That's a big mistake.
You need to use your own subcontractor agreements and include language that protects you from liability. It should be constructed in a way that allows your business to terminate the contractor when you want. Check with your lawyer about creating a subcontractor agreement that will protect your business.
5. Check Past Work & References
Always check references of the tech contractors you hire and look for examples of their past work. Sometimes you're in a hurry to deliver a project and it may be tempting to hire someone without a thorough check of their work. Don't make that mistake.
If a subcontractor makes a mistake, your client could accuse you of negligence. Doing your due diligence makes sure you get good contractors, and it can also protect you from liability as a project manager.
While more companies are hiring contractors and keeping a flexible workforce, remember to follow best practices, vet your contractors, and ensure they have adequate IT subcontractor insurance. Check out "What You Need to Know About Subcontractor Insurance Coverage" for more tips.