How business insurance works in the new “gig economy”

Business, Money

Note: This article was provided to AvvoStories by Insureon.

It seems like everyone has a side hustle these days. Some even forgo 9-to-5 jobs altogether to earn a living exclusively through what has become known as the “gig economy.” But whether you are a short-term/contract/consultant/freelance worker yourself, or just hiring one, you need to know how business insurance works for non-permanent employees.

Lots of hustling, fewer perks

Freelance work is everywhere in today’s gig economy. You might drive for Uber or just rent out your car. You might make deliveries for Drizly and run errands via TaskRabbit. Or you might have a full-time job and freelance as a graphic designer on the side.

If you do this kind of work, you’re not alone. According to a report by the Freelancers Union, nearly 55 million Americans freelance—that’s 35 percent of the workforce.

Working on a gig basis gives you the freedom to choose when you work. But as a self-employed person, you don’t receive many of the perks full-time workers do, such as:

  • Vacation and sick time.
  • Health insurance.
  • 401(k) plans.
  • Free office snacks.
  • Small business insurance.

When you work for an employer, you’re typically covered by their business insurance. However, when you work for yourself (and right now, that includes working on a gig basis), you are the business owner and you have to carry your own insurance.

Some freelancers think they don’t need business insurance because they don’t have the same exposure a traditional business does. But that isn’t always the case. Working for and with other people always comes with risk. Business insurance can help cover unforeseen accidents, lawsuits, or other issues, and give you some additional peace of mind.

Insurance options

General liability insurance is often the first policy gig workers buy. It can cover third-party property damage and third-party bodily injuries, two big risks when you work in someone’s home or office. For example, if you’re at a client’s home and accidently knock a valuable piece of pottery off a shelf, your general liability policy can pay to replace the damaged goods.

If you offer professional services, such as accounting or copywriting, you may want to have professional liability insurance. It can help pay for your legal bills if a client sues over the quality of your work. It also signals to potential clients that you are trustworthy and can cover your professional mistakes. Some clients may be more likely to hire you if, should something go wrong, they can get some money back.

If you drive for a rideshare service like Uber or Lyft, know that the insurance protection they offer drivers is very limited. Their policies can cover liability for between-ride accidents (i.e., when you’re accepting rides but don’t have a ride request), but only up to $50,000 for bodily injuries and no collision coverage. They offer some collision coverage when you do have a passenger, but again, it may not be enough, depending on the severity of the collision and injuries.

Your personal auto insurance may not cover rideshare accidents either. Right now, some car insurance companies do offer rideshare insurance, but it may be cost prohibitive. Talk to an agent to see what your options are.

For most gigs, you are considered an independent contractor, which means you’re not entitled to the gig service’s workers’ compensation insurance. In order to receive coverage for on-the-job injuries, you need to carry your own policy. However, if you drive for Uber in New York, you may be able to pay into the state’s Black Car Fund, which can help pay for medical expenses and wage replacement when for-hire drivers are injured on the job.

Can’t Someone Else Do It?

Let’s say you’re a small-business owner who wants to outsource web design, bookkeeping, or payroll. Hiring other people to perform chores or to handle one-off business tasks can help you save time, but there’s still some risk involved.

For example, what if your bookkeeper makes a mistake that results in audits and fines? If you want a way to recoup possible losses, make sure the people you entrust with these tasks have the right insurance coverage in place.

If you’re hiring someone on a freelance basis, look for general liability insurance. That way if a gig worker accidentally damages property in your business or home, their coverage can pay for repairs or replace the damaged item.

While services like TaskRabbit and Thumbtack do offer some protection for personal property a worker damages, these companies often require you to seek compensation through insurance first.

If you hire gig workers to handle tasks for your business, check for professional liability insurance, which comes in handy if you feel that a freelancer…

  • Made a mistake.
  • Didn’t complete an assignment on time.
  • Delivered incomplete or shoddy work.

The law is still deciding whether gig workers are independent contractors or employees, but at this time, most service companies classify them as contractors. That means the company doesn’t offer workers’ compensation insurance for gig workers. If you hire someone through a task service, you aren’t expected to provide workers’ comp coverage, either.

If you simply hire a freelancer who is in business for themselves, require them to carry workers’ comp coverage. If they do get hurt while working for your business, they can draw on their own coverage. Check the worker’s comp laws in your state or consult an attorney to make sure you are classifying the worker correctly.

Just because we’ve shifted to a different way of doing business in the gig economy doesn’t mean that the need for business insurance has gone away. Whether you hire gig workers or are one, it’s important to know the liabilities you face and how business insurance can help.