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On the Job

Is that independent hire insured? If not, then you'd better be.

Hire an independent contractor, pay the fee, get the work done, and pat yourself on the back for a smart business decision. But who picks up the tab if things go wrong--or if they don't go exactly as planned? It's a good idea to make insurance part of your independent contractor agreement. The insurance you require depends on the type of work the contractor does and what your liabilities are.

According to Alejandra Soto of the Insurance Information Institute, these are the coverages you'll likely need:

  • Workers' compensation: Be sure your contractors are covered in the case of on-the-job injuries. If they do not have workers' comp and are injured while working on your premises, you could be financially liable.
  • General liability: The independent contractor should have a general liability policy with reasonable limits based on the job risks involved.
  • Completion bond: This is a type of surety bond that pays for damages if the contractor fails to complete the job.
  • Intellectual property coverage: If the contractor has access to proprietary information, be sure he or she has coverage to pay for damages if that information is improperly disclosed.

In addition to addressing liability and other insurance issues in your contract, Soto recommends asking for proof of coverage. If an independent contractor doesn't have a par-ticular type of coverage, she adds, it's fairly simple to increase yours to fill the gap.

Jacquelyn Lynn is a business writer in Orlando, Florida.

This story appears in the August 2003 issue of Entrepreneur. Subscribe »