Choosing to engage contactors to perform your service is a great way of expanding your company’s footprint, building agility of service and maximizing your efficiency and effectiveness. However this modern business practice comes with risks that need to be explored; one of them is how to best engage your contractors and protect your business form exposure to liability. In this article we aim to build your understanding of how Professional Indemnity insurance operates in regards to sub-contractors and why insurers warrant that they be dutifully informed and evidence obtained that insurance is in place.
Persons contracted to the business but who are not employees must hold their own Professional Indemnity (PI) and Public Liability (PL) insurance, and likely Personal Accident cover as well, or they can be exposed to recovery action from your insurer in the event of a claim if they have contributed in part or whole to a claim. In addition if injured and uninsured they may seek to take advantage of the definition “deemed employee” possibly resulting in recovering against your workers compensation insurance. Now if that were to happen the ripple effect suggests that the income you pay them is treated as a salary affecting your workers compensation premium and there may be tax implications on top.
How do these complex liabilities arise? Well, part of it can be found in the definition of contractor and subcontractor in your formal agreements. According to a definition a subcontractor is a firm or person that carries out work for a company as part of a larger project. In other words they are an extension of your business but are performing the work under their own employment and business conditions. Whilst they are independent from your HR, finance and management practices, it needs to be made clear that they are delivering an outcome according to your requirements and relied upon to execute their services in an equally professional and responsible nature.
It gets more complex when you engage professionals as contractors. They are a person or firm that undertakes a contract to provide materials or labour to perform a service or do a job. They may even hold a business card, wear a uniform or even use tools supplied by your business. In some cases these people can be deemed workers.
So when Professional Indemnity insurers insist or warrant that sub-contractors hold their own insurance it is prudent and constructive advice and it is also common for Public Liability insurers to apply considerable excesses in the event of any unfortunate occurrence.
To ensure your business is covered you should ensure, through your contracts, that personnel engaged as sub-contractors or contractors must hold their own Professional Indemnity and Public Liability Insurance and possibly workers compensation or Personal Accident Insurance. This puts an arm’s length between you and the contractor for the perceived benefits of any insurance protection commonly enjoyed by your employees.
Reviewing your contracts of service with your legal advisers about these matters will assist to: improve clarity in your conditions of engagement; lead towards consistency with principal contractors; meet insurers’ warranties all leading towards a higher standard of work practices.
Use of contract professionals is an accepted modern business practice and can be well managed and indemnified with the right wording of contracts and policy.
For further information, contact EnviroSure on 1300 799 950