What are the tax, insurance, and liability implications of placing independent contractors?
With traditional employees, an employers exposure to liability and insurance obligations are straight-forward. For example, by purchasing general liability insurance, an IT Staffing firm is generally insuring against the negligent acts of its employees. Similarly, as an employer, an IT Staffing firm has an obligation to purchase workers compensation insurance. With independent contractors, the picture is more complicated. While an IT Staffing firm may be able to insure itself from the wrongful actions of an independent contractor, it generally cannot insure the independent contractor within its own insurance portfolio or purchase insurance on behalf the independent contractor without increasing its exposure to reclassification liability (the risk a taxing authority may reclassify the independent contractor as an employee). While the risk of reclassification is ever-present, the failure to ensure an independent contractor carries appropriate insurance coverage also carries considerable
