As a business owner, a 1099 employee or subcontractor is a beautiful thing. Referred to by the Internal Revenue Service (IRS) 1099 Tax Form, these workers are not paid wages, salaries, and tips that might be reported on a W2 form. Rather, the business is using the 1099 form to report different, specific types of income aside from those listed for W-2 forms. In other words, these employees are often subcontractors, paid by a hiring entity for work, but not an employee of said entity.
Benefits of 1099 Subcontractors
Independent contractors are self-employed and set their own fees for a job. They work for themselves and, while the hiring entity controls the result of a person’s work, the hiring entity would not control the way they accomplish the work’s completion. Often they have greater earnings because it is less expensive for a company to hire a 1099 employee than a W2 employee. Traditional employee benefits are not required and fiduciary responsibility to 1099 employees/subcontractors is far less extensive.
With that said, as a hiring entity, it’s important to make sure that your 1099 employees/subcontractors carry the proper types of coverage. This is generally detailed in the subcontractor agreement. See our recent blog Subcontractor Agreements for the WIN! for more details.
Policies a 1099 Subcontractor Should Hold
These include, but are not limited to the following.
Professional Liability Coverage
This type of coverage mitigates the risk of things going wrong in the course of work performance. Injuries to workers or damaged equipment are costly and an adequate professional liability policy would cover those expenses. This is critical not only for the subcontractor but also for the hiring entity. Anyone can sue anyone for anything so it is important for both subcontractor and hiring entity to have coverage that pays legal fees and potential damages.
Commercial Auto Coverage
If a vehicle accident occurs during the course of job completion, commercial auto coverage protects the 1099 contractor, keeping liability from being put on the client.
1099 Employees and Subcontractors should also have insurance that replaces income during a period, whether long or short, that a disability prevents earning a regular income.
This type of coverage guarantees the job is done properly, protecting the interests of the hiring entity. These are often industry-specific. Read more about how Compass Insurance Partners can assist you with this process in Need a Commercial Bond? We Can Help.
How to Mitigate Risk
There are many benefits of hiring 1099 subcontractors rather than W2 employees. However, in either case a hiring entity/employer needs to make sure that insurance needs are met. The cost can be high for failing to verify the coverage of subcontractors. The hiring entity may be held liable for an independent contractor’s “poor work, illegal conduct, or accidents.” It’s far less expensive to get the proper policies in place than it is to risk the liability that could come from negligence or accident in your work environment.
At Compass Insurance Partners, we specialize in helping businesses develop a plan to protect their interests. Give our agents a call to update your policies.