Think back to when you first started out. Chances are, you didn’t need much – just a desk, a computer, and a phone so you could drum up new business. But now that you’re buried under projects and paperwork, it may be time to hire an employee.
Going from sole proprietor to boss is a big moment for any small-business owner. And while it’s an exciting step up, it’s not without its risks. Fortunately, you can prepare for those risks by updating your Professional Liability Insurance.
Why You Need to Update Your Professional Liability Insurance
Let’s say you do hire an employee, and you send that employee out to work with a client. The employee advises the client on a project that later goes very sideways. Delays end up costing your client thousands of dollars, so they sue your business.
Guess who has to deal with that lawsuit?
Give yourself a gold star if you pointed the finger at yourself. People look to you to set things straight because you’re the one responsible for your employee's work.
According to “Employer Liability for Employee’s Bad Acts” on Nolo.com, you can be held liable for an employee’s action that falls under the scope of their employment. This usually includes the jobs that benefit your business and that are performed…
- During work hours.
- At your direction.
Essentially, the risk of employee negligence is just one of the costs of doing business. That risk, however, is covered by your Professional Liability policy. Sometimes called Errors and Omissions Insurance, Professional Liability can help pay for your defense when a client accuses you of:
- Failing to uphold the contract.
- Making a mistake in your work.
- Giving poor professional advice.
Typically, the coverage extends to employees and can help pay for lawyer’s fees and court costs.
How to Update Your Professional Liability Insurance
The easiest way to update your insurance is to talk to your insurance agent. They can tell you if your employee is covered, too.
In most cases, you simply need to fill out a form and pay a bit more for your premium. However, if your Professional Liability Insurance only covers you as an individual, you may have to upgrade to a policy designed for a business. Your insurance agent can help you figure out what to do to make sure you’re ready to take on an employee. (Related reading: "When Is It Time for New Business Insurance Quotes?")
Remember to update your Professional Liability Insurance before you let any employees do work for your business. Failing to secure coverage may mean the cost of their negligence comes out of your pocket.
For that matter, you may also want to talk to independent contractors or subcontractors about their Professional Liability Insurance. Their mistakes can be your responsibility, too. Learn more about that and the other liability insurance you may want to ask 1099 workers about in “The Small-Business Owner’s Guide to Contractor Liability Insurance.”