Nonprofits, Independent Contractors, and General Liability

do nonprofits have coverage for independent contractors

Are your independent contractors really independent contractors?  Photo Credit: TheeErin via Compfight cc

As a cost-saving move, many nonprofits pay employees as 1099 independent contractors.

There are quite a few ramifications of this practice (which I’ll dive into in another post), but I want to point out one key insurance gap that is created.

Under a general liability policy (and abuse and molestation liability and professional liability policies), the organization, employees, volunteers, and board members are covered as ‘insureds’ on the policy.

In other words, if the organization and any individual in one of those categories is sued for their work for the nonprofit, then the organization and that individual has defense under the policy.

Independent Contractors are NOT Insureds Under Most Liability Policies (without making changes)

Independent contractors DO NOT have that protection.  They are not automatically included. Some carriers will add them as additional insureds if you request, but others will not do so. Regardless, you’d have to ask.

The gap here is not about miscellaneous independent contractors – those folks who truly are independent contractors and have their own insurance.  You might not care if they have coverage under your policy. As a matter of fact, you probably don’t want to extend your policy over those 1099s.

The big issue here is when an organization pays its key employees, including it’s executive director, on a 1099 as an independent contractor. In that case, the main leader and decision-maker of the organization might not have coverage.

When you make the decision to pay your employees as 1099s, consider all the implications – not just the tax and cost-saving issues. You want to protect the people who help you do your work.  Take some time to evaluate whether or not each individual who receives money for work they do for your nonprofit is truly an independent contractor or much better described as a W2 employee.


Question: What is your experience with independent contractors as key employees for nonprofits? What should be considered when determining tax status?

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