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Contractors & Compliance – What difference does having insurance make?

Written by FCSA Business Partner, Kingsbridge

Most of us have faced a scenario where we’ve been told we need to have something, only to disregard that advice and then regret it later. For contractors and freelancers having the right insurance in place is essential. Read on below for a few of the key reasons.

It keeps contractors contractually compliant

It’s more than likely that both the agency and the end client will demand that the contractor has appropriate insurance cover in their contract – most notably professional indemnity, public liability, and employers’ liability. You’ll also find that the majority of end clients will insist that the contractor has appropriate insurance in place before they start work on site.

In addition to the above, if the contractor has a substitution clause in their contract they will be entitled to hire a qualified replacement to finish the contracted work. Employers’ liability cover would protect this substitute and would help to ensure that the contractor does not lose their contract altogether. Furthermore, having employers’ liability cover is often a legal requirement that the client will insist on.

It’s their responsibility to protect their company

Given that they are the director of their own limited company, the onus falls on the contractor to protect both themselves and their business. If they were to cause a third party damage or injury, they would find themselves liable and would be at risk of having a claim made against them. As a responsible business owner, it is imperative that they arrange suitable cover.

There are other benefits to holding insurance beyond protecting the contractor as they carry out their work. Holding business insurance demonstrates that the contractor is taking financial responsibility for their actions as a business. To HMRC this is a clear indicator that they are operating as a legitimate business, which will be a huge help in the event of an IR35 investigation. It’s also a tax deductible business expense.

They are covered if they make a mistake

A contractor may well face a scenario where they find themselves accused of professional negligence, errors or omissions, or giving bad advice. In such cases (the provision of incorrect designs for example, or accidental loss of data or documents) the client will often make a claim against them. If the claim is substantial, then the cost of associated fees and damages could well bankrupt the business they have strived to build. Having professional indemnity insurance in place will cover any legal fees as well as damages awarded to the client.

It’s highly unlikely that any contractor on site will be covered by their client’s insurance. As such, if the contractor causes any damage or injury to the property of the client, or their employees, then they may expose themselves to a potential claim. It may well be something as simple as leaving a bag in a hallway, only to have one of the client’s employees trip over it and break their arm. Having public liability cover in place would protect others from the contractor’s actions – covering legal fees and compensation paid to the claimant.

They have support if the worst happens

If a contractor received an injury that left them unable to work, they would likely face losing their contract and any associated earnings. Having occupational personal accident cover in place would provide them with a monthly payment to help towards their costs if anything should happen. The cover would protect them for a range on injuries – from one stemming from an injury on site to a car accident on their way to their client’s office.

For more information about arranging cover for your contractor clients, contact