Like many business owners, I am working through PGI’s insurance renewals for the coming year, and I felt prompted to share some notes. The points I make are essential for the consumers (clients), security agencies, W2, and 1099 employees to be aware of and scrutinize for themselves.

Background

If you are like me, you pay attention to what your insurers tell you during renewal times, particularly regarding risk exposures your carrier has experienced in the past year. If you are not considering what others are experiencing in claims, I strongly recommend you do so, as it gives you a broader view of what “might” happen to your organization before it does.

If you have ever met me at a conference as a speaker or if you spent ten minutes speaking with me, you know my constant concern is ethics in the security industry. One of the topics frequently arising is the use and employment of subcontractors and how we can apply the use of 1099 engagements. After years of lecturing on “your need to know,” you meet the standards required for your area of operation (AOO); this is coming to fruition in the carrier mandates.

To engage someone as a subcontractor or 1099 employee, you must consider:

• Are they a registered and duly active corporation?
• Do they carry appropriate insurance, including general liability and worker’s compensation?
• The tricky part is, are they licensed for their services under a contractor or agency authorized to offer these services? Not an individual guard card, patrolman, or other licensing authorizing them to work for an agency.

Now, I am not a certified accountant, nor am I a tax law attorney. Still, there are some cases where a person may be a 1099 employee with the caveat that they are meeting the statutory requirements for workers’ compensation and minimum liability protections. This isn’t very easy in some states, and you need to understand the licensing laws and definitions when they state a person must be an agency employee.

This year, a tremendous amount of focus is on Subcontractor Agreements and proper coverage requirements. You must have a written agreement with your subcontractors as you do with your clients.

The insurance industry is finally looking at contractor-to-subcontractor-to-subcontractor relationships. This has been long needed in our industry as it clarifies compliance with regulations and cuts out the intermediary or employment brokers if the requirements are legally followed.

International coverage is another concern. For many years, insurance carriers felt domestic US coverage was sufficient as long as you did not have your employees on the ground outside of the United States. Today, there is a push for international coverage that lends itself to being very expensive due to the need for more competition.

Some key points in the Subcontractor Agreement:

• Independence of work performance as a subcontractor.
• Limited use of contracted employment by the subcontractor.
• Subcontractor Obligations
  • Documentation
  • Vetting of Employees
• Insurance Protections with the Prime Supplier and Client added as “Additional Insureds.”
  • Commercial Liability – Occurrence Form Including Errors and Omissions.
  • Workers Compensation & Employers Liability.
  • Business Auto Liability, including Hired and Non-Owned Auto Liability.
  • Fidelity / Crime “A” – Employee Dishonesty, including 3rd party crime.
  • Professional Liability (may be included in the general liability as Errors and Omissions.
  • Cyber Security Coverages

As a friend told me over thirty years ago, seek proper counsel; it will save you reputationally and monetarily. Have an accountant, lawyer, and insurance advisor (all specialized as needed).