Deciding and distinguishing between employees and independent contractors is key for many small business decisions including deciding rate of pay, overtime pay, and whether benefits may be available to the worker.  This distinction also affects several small business risk and small business insurance related decisions.

Workers compensation- most notably and obviously your small business is not responsible for the work related injuries of independent contractors but it is legally required to provide this coverage to employees.  Workers compensation law varies from state to state but most states distinguish between the an employee and independent contractor by the level of control and autonomy.

Liability coverage- when underwriting your businessowners insurance policy, especially for artisan contractors and others in the construction injury, the carrier will want to know what percentage of revenues or payroll is subcontracted.  This is a liability concern for the carrier because it shifts who manages the level of risks.  If independent contractors produce the majority of your small businesses revenue, they are essentially managing the risks.  That is why if subcontractors are more than 10-25% (depending of the carrier) of the revenue production, many standard carriers will either decline to offer coverage or charge a surcharge.

Additional Insured- whatever number of independent contractors that your small business uses, you should be sure to be added on to their policy or, Practically, to work, small business owners should also request notification in the event that the insurance coverage is not longer available.

Hold Harmless and Indemnity Clauses- in the alternative, have hold harmless and indemnity clauses in your contract with them.  You want to be sure that if the independent contractor is injured they will not seek compensation from you.  You also want to be sure that if their work causes damage to a third party, the independent contractor will cooperate and defend you in any demand or lawsuit.
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