Cutting Risk on the Cutting Edge:
IT Contractors and Subcontractors: What's the Difference?

As a freelancer or small-business owner, you're a contractor when clients hire you to do work for them. If you need to bring on help for individual projects and hire people on a 1099 basis to help you complete projects for your clients, the people you hire are called subcontractors.

Why does this matter? Among other things, it matters for insurance reasons. Often, contractors are asked to name clients as additional insureds on insurance policies, offering them limited coverage through their business insurance policies. Contractors also have to worry about their subcontractors' insurance, either making sure the subcontractors have active policies or adjusting their own policies to provide the necessary coverage.

(Note: If you're unsure about whether you should hire a subcontractor, see "Contractors or Employees? Choose Right for Best Results.")

What's the Difference between an IT Contractor and a Subcontractor?

Simply put, contractors "outrank" subcontractors. Contractors are hired to lead a project. They can be the IT project manager or just the leader of a particular task.

When IT contractors hire other independent contractors to work under them on a project, these additional contractors are called subcontractors.

Contractors and subcontractors are not considered employees of the party that hires them. Both are hired to perform short-term work. Once the project is completed and the contract is fulfilled, contractors, subcontractors, and clients will no longer have an ongoing relationship.

When Do You Have to Add Clients to Your IT Contractor Insurance?

If a client asks you to add them to your insurance policy, you might be wondering: why should I include my client on my insurance? Don't they have their own coverage?

Actually, when you add a client to your policy, they only get coverage for your actions. You're agreeing to have your insurance provider cover a client's lawsuit expenses if your actions lead to a lawsuit filed against them. Here are two examples:

  • A web developer adds his client to his E & O policy. A customer of the client sues the client over a data breach. Because the breach was caused by a technical mistake, the developer's E&O Insurance covers the lawsuit and the client is shielded from these costs.
  • A network / cabling installer lists her client as an additional insured on her IT General Liability Insurance. As the installer is setting up a network at a client's office, a deliveryman trips over the network cable. When the deliveryman sues the client, the IT contractor's insurance can cover the client's legal costs.

When you list a client as an additional insured, you're only covering them when they are sued for losses caused by your actions or negligence.

When Do IT Professionals Need to Cover Their Subcontractors as Additional Insureds?

Many contracts you sign require you to have an IT contractor insurance policy (usually Errors and Omissions Insurance) before you can start working for the client. If you have to hire additional help for the project, you must make sure these subcontractors are covered.

You have two options when it comes to insuring subcontractors:

  1. Only hire subcontractors who have E&O already or require them to purchase this insurance before they start work.
  2. Add a subcontractor as an additional insured to your insurance policies.

How do you add a subcontractor as an additional insured? Simply contact your insurance provider, and they will add the subcontractor(s) to your policy. You'll have to print a new insurance certificate showing that your subcontractor(s) are included on your business insurance and send a copy of this certificate to your client.

How to Get Contractor / Subcontractor Insurance Quickly

Because you'll often need IT contractor insurance in order to begin working on a client project, you'll have to move quickly to get coverage for yourself or to add clients or subcontractors to your policy.

At insureon, our IT agents specialize in covering your business fast. From the time you submit your application, we can often get you an insurance certificate within 24 hours. You'll be covered and ready to work in no time. Submit an online IT insurance application for free quotes on Professional Liability, General Liability, and other essential policies.

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