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Contractors vs Employees – What’s the Difference?

For various reasons it is common now for architectural firms to employ staff on contract. This allows a lot more freedom on both sides to work when it suits. It is important to note however, that contractors are treated differently with respect to professional Indemnity insurance.

Employees are usually included in the definition of “Insured” in most Professional Indemnity policies, along with the directors and officers and the company whose name is on the policy. This definition also extends to include former employees, directors, and officers. This means that as well as the company having cover for work done by their employees, the employees have cover personally for the work they do for the company. For instance, if an employee signs a Memorandum – Certificate of Design covering work completed for the company, he/she will have personal cover under the company’s PI policy.

Contractors are different, as they are not usually included in the definition of “Insured”. This means that the company would have cover for work the contractor has done for them, but the contractor would not have cover personally. So in the scenario above regarding signing LBP memoranda, a contractor would not have cover if he/she is sued personally (as the signatory on the memorandum).
It is important therefore, that contractors who do work for a number of different architectural companies carry their own Professional Indemnity cover. This is not only because the policies held by the companies they work for will not cover them personally, but also because if the company is sued for work done by a contractor, the company’s insurers could subrogate their loss and sue the contractor.

Contractors who work (nearly) all their time for one company should check the insurance situation with the company. Some PI policies include contractors working greater than 95% of their time for one company as employees, and include them in the “Insured” definition. Sometimes a policy can be endorsed to include a contractor (specifically) for the work done for the company.
If you are contracting your architectural services and don’t have PI cover yourself – check with the company you work for about the cover under their policy.

Disclaimer: This blog provides general information only, and does not take into account matters specific to your business, nor provide details of every aspect of the insurance being discussed. You should always seek professional advice before acting on anything in this blog.

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