Ever found yourself in the position where you want to make use of a contractor to support your pest or building services business? If this is the case you’ve likely wondered about subcontractors and insurance. And if you haven’t then you should!
If you’re in the process of considering it, questions running around your head are likely to include:
- Am I still covered by my general liability insurance and professional indemnity insurance if I outsource certain services?
- Do I need to tell my insurance provider?
- Does the subcontractor need their own insurance too?
- What happens if a claim arises?
There’s a difference between an employee and a subcontractor, and it’s crucial that you take the right steps to protect yourself against insurance claims.
Here’s how and why.
Why use subcontractors?
There are various good reasons to subcontract services that you might normally offer directly to your customers.
Perhaps you’re entering a particularly busy period and don’t want to risk losing a customer. You might have employees on leave. Or you might be subcontracting to an area that’s difficult to reach for you.
Whatever the reason, good subcontractors can ensure both your customers and your bottom line come out on top.
But when it comes to subcontractors and insurance, many business owners and operators aren’t sure of the implications.
What’s the difference between subcontractors and employees?
It’s important to understand the difference between a subcontractor and an employee. Not only will there be insurance implications, but tax and labour law implications too. You can read more about this here.
If your subcontractor has their own customers, works for you on an ad-hoc basis, has control over the work they accept from you, sets their rates, and issues you with an invoice for their work performed, they likely meet the definition of a subcontractor.
Employees work directly for your business. Generally, they’re paid a wage and superannuation, have set hours and/or days of work, and are entitled to benefits like paid leave.
Are subcontractors covered by your insurance?
Do check your policy to be sure. However, the short answer is usually no – subcontractors aren’t covered by your insurance.
Your professional indemnity and general liability insurance cover usually extends to your employees only. Most excludes cover for subcontractors.
Your insurance policy will normally require subcontractors to get their own insurance, for the same level of cover (or higher) than your own.
Subcontractors and insurance: what to check before you start
Before hiring a subcontractor, there are a few key things to have in place to avoid disputes or issues in the future:
- Ensure your subcontractor has adequate insurance in place. This means to the same level (or more) as you for both professional indemnity and general liability. This is vital if there is a claim against the portion of work they did. Otherwise, you might be brought into the claim.
- Ensure your subcontractor is suitably licenced and qualified to perform any services.
- Set out an in-writing agreement with your subcontractor on the rates of pay, payment terms and other terms of engagement. Be as clear and prescriptive as possible to avoid debate down the track. It should also indemnify you in the event of a claim. The agreement doesn’t have to be a formal contract. However, it’s a good idea to have a simple legal document drawn up that you can use as a template for all your subcontractors.
- Check their work or their reporting before passing it on to your customer. This will ensure you’ve exercised appropriate duty of care to your customer by having whatever oversight is practical of their work
Even if you do all of this, however, you might still find a claim being brought against you. Read on for a similar situation handled recently by Rapid Solutions.
Will my insurance protect me in a claim event involving subcontractors?
Even with an agreement in place, if you use a subcontractor you may not be completely protected from a claim being brought against you.
If your customer wants to make a claim, the chances are they will make it against you. Why? Because you’re the businessowner they engaged to do their pre-purchase inspection, pest or termite treatments, cleaning services work, or other.
In their mind, you’re the one who’s accountable.
Real life claim example – subcontractors and insurance
Recently, a Rapid Solutions client did a lot of work for a real estate agency, including termite management. They engaged him to do a termite job, but he was too busy. He asked another local pest controller to do the job instead, on a subcontractor basis.
This pest controller completed the work and invoiced our client, who in turn invoiced the real estate agent. Our client had no contact at all with the real estate agent during the job. In fact, it was the pest controller who maintained this contact, including advising the real estate when the job was done, letting them know some damaged stairs could now be repaired.
Unfortunately, the stairs were not repaired immediately and a person at the property where the termites had been treated fell down those stairs shortly after the termite job was complete. This individual then sued the real estate agency and our client, as it was his company who had been engaged to do the work.
Rapid Solutions successfully defended our client, on the basis he had never been to the job site, nor had he had the ongoing contact with the real estate. Our client was eventually released from the proceedings against him, but had been brought in by the claimant and we needed to defend his position.
What you can do to manage insurance risk with subcontractors
There’s usually a very good reason why you’ve chosen to subcontract your work.
However, it does come with risk. When it comes to subcontractors and insurance, keep the following in mind:
- Ensure you advise your insurer you are using, or may use, subcontractors, and check the relevant policy conditions to ensure you’re covered in the event of a claim
- Get (and keep) documented evidence of licenses, qualifications, and insurance policies for all your subcontractors.
- Regularly check your subcontractor’s work and/or ask them to provide references. You want their quality of work to be up to the same standard as yours. Once a job is completed, ask your customer for feedback.
- Termite management and pre-purchase inspection reporting are high risk activities in terms of costly claims. Instead, consider trying to sub-contract lower risk jobs such as general pest treatments. This reduces your potential exposure to a costly claim.
- Get professional advice. Firstly, to ensure your subcontractors aren’t technically employees. Secondly, to put in place sound legal agreements in place laying out the terms and conditions of your engagements.
Don’t let your insurance cover slide
Regardless of how much or how little you’re subcontracting, make sure your insurance policies are up to date. Also, read our article ‘Pest Control Insurance Expired? You Could Lose Thousands’. Always prioritise your business being well protected.
Rapid Solutions’ professional indemnity insurance is tailored to professionals in the pest management, building inspection, agriculture and cleaning industries. So too, our general liability insurance. We understand what you need.
Subcontractors and insurance – over to you
Do you have any firsthand experience of subcontractors and insurance claims? If so, let us know in the comments.