Inflation, economic fluctuations, supply chain constraints and record-setting low unemployment – it’s a game of whack-a-mole for small business owners trying to navigate 2023’s volatile business climate. Tackling these issues is no easy feat. Fortunately, there are tested strategies that can be implemented to fortify their businesses. Two emerging trends, – the increased use of gig workers and the shift towards remote work, are changing the workplace and posing new financial risks.
Facing challenges with full-time employee hiring and a workforce shortage unseen in past economies, businesses of all sizes are hiring freelancers and contractors (gig workers) in record numbers to solve long- and short-term project needs. This, coupled with the shift to remote work as employers compete to attract and retain employees in a post pandemic world, is changing how small businesses operate.
As small business owners begin to adapt and adjust to these new workplace trends, many are unknowingly leaving themselves vulnerable to risks.
Hidden risks of new workplace trends
The increased use of gig workers or contractors to overcome shortages of full-time staff has helped grow the global gig economy so rapidly that it is expected to be valued at $455 billion by the end of next year. Just the freelance market alone is expected to grow 15% year-over-year through 2026.
What many business owners do not realize is that when hiring a freelancer or contractor to perform client work, there is an additional level of risk and liability.
For example, if a freelancer provides a client with incorrect advice that negatively impacts their business or a contractor damages a client’s property while onsite, the small business owner who hired these workers may be liable for damages incurred by the client should that client decide to file a lawsuit. Compounding the problem, these issues often aren’t recognized and addressed until long after the freelancer’s engagement with the small business is complete.
In either scenario, the problems could lead to a long, drawn-out process, which may cause reputational damage as well as financial costs for the business. Many mistakenly believe that these independent contractors or gig workers are covered by their business insurance policies or have their own coverage, but that is often not the case.
Remote work is also here to stay and is a double-edged sword. Businesses are embracing this work environment for a myriad of reasons including to meet employee demands for greater flexibility, remain competitive to retain and attract talent, and even save on office expense. But the growing desire of employees to work from anywhere – home, coffee shops, while travelling – has created significant security vulnerabilities for small business owners.
It’s no secret that remote work settings typically have less secure connections and provide easy access to company networks. Especially for small businesses that store sensitive customer data, the risk of cyberattack and associated financial costs can be significant. In fact, according to the 2022 Hiscox Cyber Readiness Report, the median cost of a cyberattack has increased 80% in just one year, from $10,000 to $18,000.
What can small business owners do? Five ways to combat the risks
When hiring gig workers:
- Implement vetting processes for hiring gig workers just as you would fulltime employees. Running background checks, reviewing previous work experience, and contacting references should be standard procedure to safeguard your business.
- Ask the right questions when hiring freelance workers to ensure your business is financially protected:
- Does your business policy cover freelancers? Business owners are surprised to discover that insurance policies often do not cover freelance workers.
- Does the contractor have his/her own liability insurance coverage? Many freelancers are unaware of the need for insurance or choose not to purchase it. Include a requirement in your contract that freelancers must carry liability insurance. Have your business named as an additional insured on the policy.
- What type of insurance does your business and/or the freelancer have?
While the insurance needs vary by type of work, two key policies to consider are General Liability and Professional Liability.
- Imagine you’re onsite at a client location and a contractor you’ve hired accidentally damages a window, or a consultant spills coffee on a client’s laptop. You could be deemed liable. If an accident or unexpected event occurs that leads to bodily injury or property damage, a General Liability policy may cover these situations.
- Professional Liability Insurance, also known as errors and omissions, generally covers negligence arising from professional services. Issues can range from alleged or actual negligence (e.g., a freelance accountant giving incorrect advice to a client), to claims of personal injury from alleged libel/slander if the consultant is thought to have said or written something negative or untrue.
For businesses that embrace remote work options for employees or gig workers:
- Establish a relationship with a good IT professional to help implement new security measures.
- Educate employees about how to detect a cyber event and develop a rapid response action plan.
- Protect your business from the cost associated with a data breach, hack, or ransomware demand by acquiring cyber security insurance. Often, your policy will include breach response experts who will spring into action as soon as an attack is reported.
Protecting the small business is the bottom line
Paying attention to emerging workplace trends and acting on them to protect against various risks that threaten the success of the small business is smart ownership. In particular, evaluating and updating strategic business insurance coverage is an important practice for any entrepreneur or business owner. In the end, these are best practices that help preserve the organization and allow the small business owner to sleep well knowing they are protected.
Tyler Peterson is the Head of Professional Risks at Hiscox USA, a leading insurer for more than 600,000 U.S. small businesses, freelancers and others, and is responsible for overseeing the Professional Liability offering.
Freelancer stock image by djile/Shutterstock
