Cutting Risk on the Cutting Edge:
What Counts as an IT Business?

You don't have to have a fancy office building and a staff of dozens to be considered an IT business. In fact, in the eyes of regulatory bodies and the government, you're a business any time you earn money for providing a service.

So if you offer information technology services as a freelancer, consultant, or independent contractor, you're legally as much a "business" as someone with a personal assistant and offices in three countries. And that means you need to follow certain rules and have certain protections in place.

Even if you're an independent contractor doing a few projects here and there to supplement income from a full-time job, you have to follow the rules of regular businesses. These fall primarily into three categories:

  • Paying taxes. If you operate as a freelancer or independent contractor, you'll probably want to pay quarterly taxes, which are due four times a year. If you miss a payment, you could face steep fines at tax time.
  • Following employment regulations. If you hire employees, you've got to make sure you're following regulations at the state and federal level. For details on what these regulations include, see the page, "Contractors or Employees? Choose Right for Best Results."
  • Managing risks. Yes, the insurance side of things. You knew we were going to mention it at some point. In fact, let's take a closer look at what you can do to protect your IT business liabilities and insure your contracts.

IT Risk Management Strategy: How to Protect Your Tech Business from Lawsuits

You can invest in insurance for your IT business (we'll go over this below), but it's also important to prevent lawsuits whenever possible. Of course, if lawsuits were easy to prevent, there would be far fewer lawsuits. In reality, preventing IT lawsuits is complex because it requires adopting a comprehensive IT risk management plan.

Here are a few project risk management tools and techniques:

  1. Always use contracts, and if possible, limit what you can be sued for in the contract.
  2. Practice good communication with clients and document your meetings with follow-up emails and detailed invoices.
  3. Establish protocols for client approval.
  4. Establish protocols for dealing with client complaints.

For more on preventing a lawsuit, see our article "Lawsuit Prevention Policies for IT Businesses."

What Are IT Businesses Liable For?

IT companies are liable for protecting their clients' data and delivering quality IT solutions. That sounds simple enough, but it's not.

Did you know that, as an IT business, you could be sued for a third-party data breach? Say you install a workflow management tool at a client's office. This cloud-based solution tracks employee work and provides a platform for them to exchange files. Unfortunately, this application is hacked, and your client's data is exposed. You might actually be liable in this situation. Even though your client's data was stored in a third-party cloud, you can be sued because you recommended this service. That's your third-party cyber risk.

IT Errors and Omissions Insurance can cover these professional risks and others, depending on the kind of IT work you do. This coverage is the Swiss army knife of insurance policies — it has several tools to your IT business. Here how it works for various IT companies:

  • Computer programmer insurance pays for lawsuits over software flaws, testing errors, latency, and other software problems.
  • IT and computer consultant insurance covers lawsuits over bad recommendations, faulty third-party solutions, missed deadlines, and compatibility issues.
  • IT contractor insurance can be expanded to cover subcontractors you hire. You can add subcontractors as "additional insureds" to your policy, covering them for any mistakes they make while working on your project.

Whether you're a web app developer or a computer repair technician, E&O Insurance can be customized to insure your tech liability.

For a free quote on IT business insurance to cover your tech liabilities, submit an online insurance application. When you work with insureon, you work with agents who specialize in IT liability. Insureon has covered tens of thousands of IT companies and independent contractors, helping them get the coverage they need to protect themselves from cyber liability and cover their contracts.

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