IT Contractors: How to Negotiate Contracts & Remain Protected

Working as an independent contractor has its benefits, but also comes with many challenges. One of those challenges relates to insurance. Many often wonder, “Do I really need to carry insurance? How much will it cost me? What is required of me, and what is recommended?”

These questions play a big role when considering how to negotiate your work contract. There are certain guidelines that must be followed as well as other recommendations that should not be overlooked.

Regardless of the business size, business owners always try to make decisions that will ultimately protect their business. However, it is common for smaller business owners and independent contractors to undermine the importance of having the proper insurance for their business. In addition to protecting the business, there are many jobs that a contractor may wish to bid on that require a certain amount of insurance.

Understanding the various types of insurance and requirements is the first step to ensure success. Here are various types of insurance that independent contractors should consider.

General Liability Coverage

This provides protection in the event something goes wrong. This might include employee injuries or equipment issues. If the contractor happens to cause an injury to someone on the job site, this would cover the medical bills.

Commercial Auto

This protects both the contractor and the hiring company if something happens while driving as part of the job. If the contractor were to get into an accident on the way to a job or something that is related to the job, this insurance would cover accident-related costs and the client would not be held liable.

Disability Insurance

This is a wise choice for any independent contractor. If the contractor becomes ill or injured and unable to work, this insurance will provide a weekly benefit until they can return to work.

Performance Bond

This guarantees satisfactory work or provides bond money to finish or repair the project. It protects the client from subpar work or an unfinished project.

Worker’s Compensation

Although similar to liability insurance in many ways, this is reserved for coverage of the business owner and employees. Rates fluctuate based on the hazard and risk associated with the particular job. States require any company with employees to provide this or face a penalty.

Errors and Omissions

This provides coverage to professionals such as consultants, accountants, or attorneys. In the case of an unhappy customer that is suing for mistakes or poor performance, it provides adequate protection.

As an IT independent contractor, you will find that many companies require you to carry general liability insurance. There is too much risk and cost associated with IT work today, and neither side should risk the potential fallout of a mistake or problem. Independent contractors typically lack the resources needed to fight a lawsuit or cover a costly mistake.

Rates for insurance vary depending on the level of coverage, type of job, risk involved, waiting periods (if applicable), amount of benefit, etc. There are independent contractors who must carry worker’s compensation and general liability insurance, such as those who provide maintenance or construction services. This is due to the higher risk involved. If you are the hiring company and fail to confirm that the contractor does indeed have this coverage, you will be responsible for potential medical or legal consequences.

Remember, the state of NJ has very specific guidelines regarding who is required to carry various types of insurance. Failing to understand these requirements can result in serious fines.