Hiring a contractor is a valuable way to support your growing firm, allowing you to take on more work and extend your core services. The benefits speak for themselves. What’s not so clear cut are the differences between a labour-only and bona-fide subcontractor.
Labour-only subcontractors are like an extension of your team in that you are responsible for their work and they must be covered by your public and employers liability insurance. Bona-fide subcontractors are liable for their own work and are covered by their own insurance.
If you’re scratching your head over what these differences mean for your business, you’re not alone. Team Glowsure is often asked about the differences between labour-only and bona-fide subcontractors from an insurance perspective, and we’re here to help.
Here’s our quick and easy guide.
Who classes as a labour-only subcontractor (LOSC)?
When you hire any type of contractor your clients will see them as an extension of your business, so you should always be assured of their credentials, that’s a given.
But when you hire a labour-only subcontractor, that association runs deeper.
A labour-only subcontractor is just that – labour only. They will carry out work under your instruction, using your tools and equipment.
Should any quality issues, negligence or accidents arise during the course of their work, then you are responsible for it in the same way as any other member of your permanent team.
How are labour-only subcontractors paid?
Labour-only subcontractors are usually paid hourly, daily, weekly or monthly, giving you great flexibility and value for money.
As a self-employed individual, a labour-only subcontractor is required to pay income tax and National Insurance.
However, if they don’t fulfil their obligations, your business will be liable for any debt, unless you are CIS registered.
What insurance cover does a labour-only subcontractor need?
A labour-only subcontractor does not have business structure of their own and, therefore, is not required to have their own liability insurance.
Should there be any issues with their work that have a negative impact on them or a member of the public, then it is your business insurance that will take the hit.
So, as a tradesperson or construction company, if you hire labour-only contractors you must ensure they are covered by both your public liability and employers liability insurance.
As a labour-only subcontractor is considered as your employee in insurance terms, you are responsible for the quality of their work and ensuring it’s up to standard.
You’re also responsible if they have an accident, so you must make sure that they are aware of and adhere to your health and safety policies.
There is one important caveat, however.
Labour-only subcontractors are not tied to a single company so some employers insist on them having their own public liability insurance. This provides the employer’s business with valuable financial protection.
If an insured incident did occur in this instance, the claim would be made against the employer’s policy, but the costs would be recovered from the subcontractor’s insurance.
This means the employer doesn’t end up out of pocket and their premiums remain unaffected at the time of renewal.
If you are unsure whether your public or employers liability insurance policy covers the work of labour-only subcontractor, then seek the advice of a professional insurance broker to put your mind at ease.
What is a bona-fide subcontractor (BFSC)?
A bona-fide subcontractor runs their own business. When you contract them to your project, they work under their own steam, using their own materials and tools.
They are usually brought in to complete a specific job, such as wiring or plumbing on construction projects.
A bona-fide subcontractor is responsible for the quality of their own work, and is liable for any negligence, errors or quality issues. So that provides you with a valuable guarantee that the work will be carried out satisfactorily.
As a business in their own right, they can hire their own employees to work on your project, which they are responsible for paying, insuring and supervising.
How are bona-fide subcontractors paid?
When you hire a bona-fide subcontractor, they will first provide you with a quotation for the job. This is usually a one-off fee which you agree before work commences, giving you the benefit of being able to set a clear budget for your project and avoid any unexpected costs.
What insurance cover does a bona-fide subcontractor need?
A bona-fide subcontractor will have their own public liability insurance which covers their work, giving you great peace of mind.
However, you are responsible for ensuring that they have public liability insurance to a value at least the same as your own. Your insurance provider will require written confirmation of this.
A bona-fide subcontractor is responsible for their own health and safety at work and that of their employees, covered by their own company’s employers liability insurance.
What is the difference between public liability insurance and employers liability insurance?
As a construction company or tradesperson, you work in the public domain and due to the high risk nature of your work, it’s a legal requirement to have employers liability cover.
Public Liability Insurance
Public liability insurance will cover the cost of legal action and compensation in the case of an accident, error or negligence that affects a member of the public.
This could be an accident on site where a passer-by is injured for example, or in the case of property damage such as damage caused by a burst pipe.
Employers liability insurance
Accidents can and will happen on a worksite and, as an employer, you have a responsibility for your workers’ health and safety.
Should they become injured at work, employers liability insurance will cover you for any associated legal or medical costs.
If a permanent member of your team becomes too ill too work, your employer’s insurance will protect your income by covering sick pay.
At a glance – what is the difference between Labour-Only Subcontractors and Bona-Fide Sub Contractors
A labour-only subcontractor:
- Is directed and supervised by you.
- The quality of their work is your responsibility.
- Uses your materials, tools and equipment.
- Is paid by the hour, day, week or month.
- Has no authority to employ others.
- Does not have their own insurance so will need to be covered by your public liability and employers liability insurance.
A bona-fide sub contractor:
- Works under their own steam and requires no supervision.
- Has responsibility for correcting unsatisfactory work.
- Provides their own materials and own tools.
- Is paid under the terms of a pre-agreed, fixed-price contract.
- Has authority to employ and pay workers.
- Has their own insurance for them and their employees, which you are responsible for seeking evidence for.
How can Glowsure help?
If you are in construction, or a tradesperson and are thinking of hiring subcontractors, then it is essential to inform your mortgage broker or insurance provider for professional advice.
They will ensure you have adequate cover should a problem arise as a result of a labour-only subcontractor’s work. They can also help you ensure a bona-fide subcontractor has sufficient liability insurance to avoid any costly mistakes.
Glowsure can give you all the reassurance you need about protecting your business.
We have a great track record in securing the best commercial insurance deals for tradespeople like you and, when it comes to subcontractors, we have you covered.
There are pros and cons of using both labour-only and bona-fide subcontractors, and the route you go down will depend on your budget and the type of project you’re undertaking.
If you decide to use a contractor, you must be aware of the differences between the two classifications and understand your liability from an employer and insurance point of view. The consequences of making an error can result in unforeseen enormous costs, which can be devastating for small businesses.
When it comes to subcontractors, it pays to get the advice of a professional broker such as Glowsure to ensure you have the right insurance to protect your business.
Glowsure have got your back for business insurance and help is just a phone call away. Contact us for advice on your existing business insurance policies or for our help in securing you a better deal.