Figuring Out the “Gig” Economy: What Constitutes an Independent Contractor?

The rise in recent years of for-hire business models, like those used for driving services Uber and Lyft, and delivery services like Instacart and Postmate, have put the term “independent contractor” under the microscope.

High profile liability issues (like the class action lawsuit that former drivers are filing against Uber) are only one aspect of the confusion; not only do employers need to understand their obligations towards the different types of workers they hire, but aspiring entrepreneurs should have a handle on what kind of risks and rewards are associated with self-employment.

The IRS has suggestions for defining characteristics that determine whether or not a worker is an employee or independent contractor…

  • Who controls details of how the work is done?
  • Who is responsible for negotiating the business aspects of the worker’s job?
  • Who provides the worker’s benefits? (Vacation, insurance, pension, etc.)

The most basic distinction, tax-wise, between an employee and an independent contractor is that an employer is generally held responsible for withholding income taxes from an employee’s wages, but not for those of an independent contractor. Workers who are hired as independent contractors are often called “1099s”, a reference to the year end tax form they receive. (As opposed to “W2 employees”, who fill out a W2 for their employers and have taxes withheld by them).

But there are distinctions between the two types of workers that have ramifications in the insurance world, as well.

While the IRS may accept your choice to classify a worker as a subcontractor who receives a 1099 from you at the end of the year, if that same worker is injured on the job, or the subject of a lawsuit, it’s the Department of Labor who will determine if the individual is an employee or a subcontractor, regardless of which tax form they’ve been receiving from you.

And if the decision is that they are truly an employee, instead of an independent contractor, you will be held responsible for all medical costs, lost wages, future lost wages, etc, regardless of who has been paying their employment taxes.

The “bottom line” is always a factor in business decisions, and while the short term benefit of not having to pay employment taxes may sway business owners towards a preference for classifying workers as independent contractors, the potential for liability and associated costs should motivate the final decision about how to categorize the people they hire.

In fact, insurance costs for standard employees may actually be lower than those for subcontractors in some cases, although rates will vary from business to business and state to state.

For the individual who is trying to determine what the best status for them would be, the same elements of cost and risk should be weighed.

While the freedom to regulate the amount and type of work taken is a great benefit, independent contractors should also remember that they will shoulder the responsibility for damages or personal injury, and weigh out those costs against the perks of self-employment.

Getting specifics about insurance coverage from anyone hiring you as a subcontractor is highly advised, and keeping a policy in place for yourself that covers you in case of injury or damages could help forestall future financial disasters.

Call one of our specialists today (1-877-907-5267) or use the orange quote box above to find quotes for both worker’s compensation and general liability policies for small business owners and self-employed entrepreneurs.

Employee Benefits Liability Coverage

Employee benefits liability coverage is just what it sounds like: It covers the company against errors or omissions which were made about an employee’s benefit plans.

This kind of coverage is usually an endorsement on another policy such as the commercial general liability policy, but it can be a stand-along policy .

Most claims revolve around clerical errors wherein the employee is not added, added to the wrong benefits, or deleted from coverages. Errors which happen in advice to an employee about a particular benefit or mistakes in calculating the amounts of contributions of the employer or employee are also covered by employee benefits liability coverage.

Such errors are usually in the Human Resources Department, though they can also come from record-keepers, accountants, and trustees.

Here are a few scenarios:

A new employee chooses her benefits in the group medical plan, but the paperwork gets lost at some point after she has finished it. No one notices that it became lost, and there is nothing to trigger an alarm that such a thing happened.

Once the initial enrollment period has passed, the employee is stuck with no health coverage until next open enrollment.

Of course, this in itself is actionable, but if the employee has a chronic illness or has an accident, this becomes crucial, and the company will have to come up with a way to settle the problem.

Employee benefits liability insurance is among the least expensive kinds of coverage, particularly if it is an endorsement. It should, however, be part of your portfolio risk management strategy. Be sure to bring this issue up with your licensed insurance professional.

Employee Practices Liability Coverage

Statistics suggest that three out of five companies will be sued by an employee or former employee — or even someone who interviewed but never became an employee — at some time. That would suggest that anyone who has a business should consider that it is not out of the question that they could be a target.

Employment practices liability is a newcomer to the insurance coverage world. It provides the employer, directors, officers, and business protection against claims which are made by employees, potential employees, or former employees.

Such claims include wrongful termination, sexual harassment, invasion of privacy, breach of contract, emotional distress, false imprisonment, and wage and hour law violations. It also covers discrimination, whether racial, sex, age, disability, or any other unlawful discrimination, and other employment-related accusations or law suits.

It might be something you or your managers or supervisors are accused of doing or saying, or it may be over an off-color joke someone told in the break room. Or it might be something that a disgruntled employee has exaggerated. Any

As a business owner, you will want to have employment practices liability coverage before you hire your first employee.

All companies are vulnerable, whether small or huge, and even a groundless suit can cause major damage in financial resources, and time if the company is not covered.

If you plan to have have one single employee or 5,000, you will want to look into employment practices liability insurance. Be sure to talk to your licensed insurance professional about what levels of EPL you should have.

Ahoy! Ocean Marine Insurance

Ocean marine insurance is a type of transportation insurance which is intended to protect goods that are transported on the water.

It covers a large range of causes of loss, usually o a named peril basis, including sea perils like collision, stranding, high waves, loss or damage caused by pirates, jettison, or fire.

Marine insurance can cover the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination.

Ocean marine insurance can take the form of a number of different contracts, depending on the requirements of the insured.

Cargo Insurance
Cargo insurance covers the shipper of goods or cargo in the event that the cargo has been damaged or lost.

Freight Insurance
Freight insurance protects the ship owner in case the cargo becomes damaged or lost.

Hull Insurance
Hull insurance is best described as resembling collision coverage in a car insurance policy. It provides coverage against against damage to the ship or other vessel. There is a deductible that goes along with hull insurance.

Hull insurance has an extra coverage, known as collision liability coverage which provides protection for ship owners in the event that their vessel causes damage to another vessel and its cargo, if necessary. This clause does not cover bodily injury liability.

Protection and Indemnity Insurance
Protection and indemnity insurance indemnifies the owner of the ship against liability arising from bodily injury or property damage to those other than the owner of the vessel.

Workers Comp: How To Reduce Your Premiums

We frequently hear the complaint that Workers Comp premiums are too high. The fact that it is legally necessary in all but one state leaves only one option: Find ways to reduce those premiums.

The first thing you want to do is to talk to your insurance professional to ensure that you are being billed appropriately.

You want to see to it that your employees are classified properly. The premiums vary, depending on their positions in your business. If they have been promoted or moved to other positions, you want to ensure that this information was received by the insurance company.

Rates are based partly on the amount of benefits paid, so the earlier an employee gets back to work, the lower the benefits paid. Work to get your injured employees back to work quickly. If you need to, you can set up a temporary job for them which is not physically taxing and allows the employee to come back to work on “light duty.”

Start a safety program which is created to keep your insured employees safe. Make sure that the offices are ergonomically correct. If they use industrial machines and equipment, make sure they wear safety glasses and helmets or whatever protective garb is recommended. Require employees who work in a warehouse or delivery truck to wear back braces and make sure they get training in correct lifting.

Whatever you do, you want to keep your carrier informed of safety changes and improvements made to the workplace.

Review your workers compensation annually when you review your other business insurance. Work with your licensed insurance professional and workers comp carrier to make sure your coverage, risk exposure, and premium is where they should be.

So, What If I Get Sued?

We hear it said all the time: We live in a litigious society.

Before we get started, the simple definition of the word “litigious” is: inclined to go to law; tending or wanting to take legal action.

And so we do live in a litigious society! And as a business owner, you should be aware that more likely than not, you will be a target.

In 2010, the number of lawsuits filed in state courts was over 15 million. That is approximately one new law suit every two seconds. In terms of population, that’s one law suit for every 12 adults in this country.

During the same timeframe, the swelling numbers of malpractice law suits and resulting soaring premiums for malpractice insurance forced 10% of American obstetrician/gynecologists to stop delivering babies.

You will want to be sure that your general liability insurance is appropriate for your risk. It is that policy which protects your business when it is sued for something that is alleged your business did or did not do which contributed to property damage or personal injury to another person.

Furthermore, this coverage will pay those damages, but it will also pay toward the attorney fees and court costs, whether the law suit has merit or not.

The exclusions which usually go along with this sort of policy include employees’ claims of wrongful termination or discrimination, harassment, or wrongful termination. These sorts of suits are addressed by professional liability coverage and employee related practices coverage.

Don’t risk all you have worked for by neglecting this important coverage. Your licensed insurance professional will guide you to what coverage is needed today, and more important, how to protect the future as you grow your business.

Business Owner Policy Exclusions

A business owner policy is an extremely comprehensive coverage. It is usually written as an all-risk policy unless the insured requests the named peril policy.

All-risk coverage is an insurance policy which covers losses from any and all causes which are not specifically excluded in the policy.

Named peril coverage is a policy which covers only specific losses which are listed on the policy. It is the opposite of all risk-coverage.

Below is a list of perils which are usually excluded from business owner policies.

  • Nuclear hazard;
  • Operations executed by the government;
  • Military actions;
  • Weather conditions;
  • Smog or pollution;
  • Water, including flood, seepage, or sewer backup;
  • Earthquakes;
  • Intentional illegal actions performed by the named insured;
  • Criminal acts or fraud performed by the employees of the named insured;
  • Errors in the computer system of the insured business owner;
  • Errors and omissions in computer operations;
  • Explosion of machinery such as engines or boilers;
  • Power failure;
  • Damage or loss caused by normal wear and tear;
  • Loss of market;
  • Losses caused by animals, birds, or insects;
  • Decay, rust, or corrosion; and
  • Property loss resulting from faulty design, planning, or development.

    It is important that a business owner understands the exclusions and realizes that it is probable that different coverages need to be obtained to “fill in the holes” left in these exclusions.

    This is best done by working with a licensed insurance professional who understands what you do and how and can recommend the other coverages you may need to avail yourself of.

    What Is the Difference Between Actual Cash Value and Replacement Cost?

    To begin with, let’s define the terms “actual cash value” and “replacement cost.”

    Actual Cash Value
    “Actual cash value” is a little tricky. The insurance industry’s definition of ACV is “the cost to replace with new property of like kind and quality, less depreciation.” Or course, in the case of outdated or one-of-a-kind items, it can be difficult to calculate what that means. There is also a question in many cases as to whether depreciation includes obsolescence.

    Lately, there have been court cases where the judges interpret the term to mean the amount that a buyer would pay a seller for the damaged item, or fair market value.

    Replacement Cost
    To put it simply, “replacement cost” means the amount of money it will take to replace the property with an item of comparable quality and material. If, however, the cost of repairing the damaged property is less than replacing it, that will be what the insurance company pays for.

    Generally speaking, replacement cost will be the best method to use in cases of stolen or damaged property. If your iMac computer is stolen, a policy which provides replacement cost would reimburse you for the cost of replacing it with a similar iMac. This will be paid without the insurer taking into consideration the fact that you had the iMac for 5 years and it had several scratches on the monitor and had suffered considerable wear and tear over the years.

    Actual cash value would pay for the same iMac computer what it will cost to buy another iMac minus the amount of depreciation from a formula that factors the age and wear and tear of the iMac. ACV will usually be roughly what you might have sold the computer for in the marketplace.

    Naturally, you will want to meet with a licensed insurance professional before you decide which method is best for you and what limits you want to have imposed.

    Do I Need Insurance for My Part Time Business?

    A 2012 survey reports that 9.5% of households include a home office. Some of these home offices are actually telecommuters who work remotely from home, but most are small businesses of one sort or another.

    If you own one of these small, part time businesses, you want to be sure to put some sort of part time business insurance in place. Do not make the mistake that many small business owners have made: do not assume that your homeowners insurance will cover your business claims.

    Most homeowners policies do not cover business-related losses unless you have negotiated a rider with your insurer which changes that. Keep in mind, however, that a rider will only be effective if you have a very simple business, such as one which uses just a computer or a phone.

    But if you are manufacturing products or doing repair work of some sort it is likely that you will need something more substantial, such as specific commercial insurance. And, of course, unless you live and work in Texas, you will need workers compensation insurance.

    Think for a moment about the risks a home-based business has: theft, natural disaster, damage or perceived damage to a client, and, of course an accident involving your vehicle.

    But the biggest risk of all is not having the appropriate insurances!

    If you have a small, part time business, you should contact a licensed commercial insurance professional as soon as possible. You will want to work with that professional to determine which insurances you need.

    Business Insurance Basics

    Whenever you think of business insurance and all the language which those in the insurance industry use, you will want to know these basics. When you begin your journey to acquire insurance and it all seems overwhelming, remember the basics we will discuss here.

    Business insurance will essentially cover one of the following:

    In insurance-speak, property used in your business will include the building in which your business is located, whether it is leased or owned.

    Property also includes equipment including business equipment such as computers and tools, furniture, and anything else which is used to conduct business, including vehicles. Property policies are created in order to protect these assets.

    People in this case include you and anyone who works for you. As a business owner, your employees are one of your greatest assets. Hence, you might consider offering benefits such as health insurance and life insurance as well as short- and long-term disability insurance.

    As of this writing, worker’s compensation is required in every state except for Texas. Though Texas law does not require worker’s compensation, many customers may require you to carry it.

    Business liability insurance is created in order to protect your business from being held liable for error or injury. This includes damage to property, people, and implied damages. Liability insurance covers the cost of litigation for these claims.

    Your business cannot survive very long if your income stops. If disaster hits, business interruption insurance can provide a revenue stream while you  rebuild  or relocate to another location, either temporarily or permanently.

    Use this basic information to work with your licensed insurance professional. Together, you can determine the coverages your business needs and how to maximize your coverage.