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How to protect yourself when working with independent subcontractors

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Hiring a subcontractor has become a routine practice in nearly every industry because of the benefits. Working with subcontractors allows you to bring in more efficient experts for specific tasks or unload set tasks to someone else, freeing you up for more value-added work. It offers more flexibility than hiring a permanent employee, and you can bring in whoever is best at the work at hand. However, hiring subcontractors is not without risk. Let’s learn how to protect yourself when working with independent subcontractors.

Understand the risks involved

Depending on the type of work you need done, there is a specific set of risks when working with subcontractors. The first issue with subcontractors is that they aren’t employees, and this means that you can’t have the same control over them.

While they may be contracted to do a specific job, there’s a very real chance that they’ll simply won’t show up, can’t deliver on time, or simply vanish into thin air. This is why you should always have a contingency plan in case that happens and have a shortlist of other subcontractors on hand if anything happens.

Then there’s the issue of vision and work ethics. While some subcontractors might be very good at what they do, they may not have the same values or philosophy as you when it comes to doing business. Even things like political affiliations might become an issue for you.

If you’re hiring a subcontractor to do some copywriting for you for example, their worldviews and political leanings might reflect themselves in their writing, which may become an issue for you. For instance, you don’t want someone to turn a piece on ecofriendly technology into a tool to push climate change denial propaganda.

The issue is that it’s often difficult to form a true relationship with subcontractors as they’re only temporary. The two of you may also have very different ideas of how work should be done, and while they may say that they’ll abide by your rules, you may find out that they completely dismissed them later on.

Working with the wrong subcontractor could also affect your brand negatively. If you end up hiring someone and they do a bad job, then you can’t put it on them. The funny thing, however, is that subcontractors could try to take credit for a job you’ve done, and even steal some of your business.

Another issue that you’ll have to watch when working with subcontractors is cash flow. Depending on the payment scheme that you have with them, you might have to pay them before you’ve received money from your clients. So, it’s important that you set up a system where you can get at least a partial payment at first if possible, and use this money to pay your subcontractors in order to cover the risk.

Do your research

A good first step is to run a background check on the potential contractor. These background checks should investigate someone’s criminal history, driving record, drug use and employment history. Credit history may be worth investigating, as well. And yes, you can run these background checks on contractors just as you do employees.

Furthermore, if your company works with sensitive populations like minor children, the elderly or the disabled, your company may be mandated by law to conduct background checks on all workers that come into contact with your clients.

However, you can’t just do an internet search on someone. You may discriminate against someone assuming they are the person who comes up as the first match, and you may miss critical information by using general search results. The solution is to have a standard operating procedure for background checks. Require the same set of information from every contractor, and run background checks on employees and contractors through the same service.

Websites like www.publicrecordsreviews.com allow you to conduct a criminal background check against state and federal databases as well as searching dozens of other repositories of publicly available data. The simplest query allows you to do a search based on first name, last name and last known location. The site allows you to search everything from alias records to court judgement records to liens.

The service searches police databases for traffic tickets and county records for someone’s address history. This information can help you determine if someone has a lot of red-light tickets though nothing landed them in prison. You can verify that someone isn’t a sex offender before you allow them to work in your home, your daycare or your school. You’ll also be able to see if contractors have been repeatedly sued and have judgements against them.

Protect your brand’s reputation

Your customers and clients aren’t going to see a difference between contractors and employees. Everyone working in your building will be seen as an extension of your brand. You should have high standards for both employees and contractors, and enforce them equally on both groups. After all, you’re the one who will get the angry phone calls if your team or your subcontractors damage the customer’s property.

In some cases, you may hire a subcontractor who hires contingent workers. Spell out the obligation of the subcontractor to screen these employees using the same standards you use. Then you know they’ll meet and maintain the same standards you’d have for those you hire yourself.

Protect yourself with the right paperwork

Always ask for additional insured endorsement with the insurance certificate. This certificate should either have you listed as an additional insured or a blanket additional insurance endorsement. This helps to protect your business in case it is sued when the subcontractor is at fault.

You should always have a formal subcontractor agreement in place with every subcontractor before work begins. This doesn’t have to be a long document, but there are several key elements that need to be in place.

First, it must state that the contractor is an additional insured on the subcontractor’s general liability insurance. That coverage should be primary and noncontributory for the additional insured, namely, you. Second, it must state that insurance obtained by the contractor is excess, not co-primary and excess to coverage by the subcontractor.

Third, there should be a waiver of subrogation cause added to the auto insurance, general liability coverage, and worker’s compensation policies in favor of the contractor. Fourth, you should have the same notice of rights as the named insured. This ensures that you’re informed if the contractor cancels their insurance before they finish that addition on your house or upgrading your servers.

Why are these terms necessary in the subcontractor agreement? Most additional insured endorsements provide coverage only when there is a written contract spelling this out. That means that if you don’t have a contract in place, you’re not covered by their insurance policy in most cases. Then you’ve increased your exposure and dramatically increased the odds a claim will be filed against your insurance policy because of the contractor’s actions.

The next step is putting a line in the contract that you don’t have to remit payment until these requirements are met. Protect yourself by putting these legal conditions in all subcontractor documents, and require someone to agree to them before beginning work. Seek expert legal advice if necessary, but don’t leave yourself exposed.

Another way you can protect yourself is by including language in the subcontractor agreement that prevents them from taking a job with your client or taking your intellectual property. This is the standard language found in many subcontractor agreements. However, you should have a clear scope of work, time and cost estimates, reimbursement of expenses and task milestones.

Spell out how the project is organized and how you determine when it is done. For example, identify who the subcontractor should go to for information or resources. It is recommended to have a formal process for handling changes to the scope of work, schedule or budget.

Maintain a safe workplace

Protect your employees, contractors and yourself by maintaining a safe workplace. Keeping the floors clean and clear of obstacles and ensuring everyone uses personal protective equipment are good first steps. Ensure that your employees are trained in how to use personal protective equipment like helmets and respirators, and verify that subcontractors have the right safety gear and know how to use it, too.

Have rules that forbid roughhousing or taking shortcuts that create safety hazards, and then enforce them. For example, you should fire anyone immediately if they engage in workplace violence or deliberately damage property. When someone makes mistakes or fails to follow the rules, remove them from the worksite and determine whether they need further safety training or should be fired. Don’t let managers ask people to do things they aren’t qualified to do. All of this reduces your liability if there are claims later.

It is difficult to find a good, talented independent contractor. Treat them like employees in most respects while taking care of the necessary paperwork and performing due diligence.

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