Labour only vs bona-fide subcontractors – are you insured correctly?

On occasions, a trade business might pick up on their potential difficulty in comprehensively handling a project with their own in-house staff. That project might call for special skills that the business doesn’t have, or perhaps the company is already weighed down with a heavy workload.

That’s where a subcontractor could step in to help the company in filling that looming gap in productivity. With an extra pair of helping hands, the firm can take on the project and complete it to a high standard – but subcontracting has insurance implications for people on both sides to heed.

What is a “labour only” subcontractor? 

Subcontractors can be categorised as “labour only” and “bona-fide”. While you should tread carefully in attempting to distinguish between the two, the key difference largely lies in how closely the subcontractor is integrated with the business for which they are temporarily working.

Once a labour only subcontractor gets to work, they can be nearly indistinguishable from the company’s employees. This is because that subcontractor will work under the company’s supervision and with materials, equipment and tools provided by that firm.

Typically, that business will also determine the subcontractor’s hours and direct their working practices and whereabouts, the British Woodworking Federation explains. The worker may even be salaried by the company legally obliged to hold employer’s liability insurance for them.

What is a “bona-fide” subcontractor?

Subcontractors of this type work more independently of the company – to the extent that deciding on hours and supplying tools, equipment and materials both fall under the worker’s remit. These workers are paid by invoice rather than salary, and work without the firm’s supervision.

It all adds up to a looser arrangement for which the company would not need to specially take out employer’s liability cover. However, it would clearly remain important for the firm to vet the worker, such as by seeking proof that they hold any relevant qualifications, memberships to trade bodies, and adequate insurance.

The company should also, before hiring the subcontractor, verify that they have employer’s liability insurance for their staff, should they have any other team members.

What if you will be hiring a labour only subcontractor?

Let’s assume that you, the reader, are at the helm of a company mulling over hiring a subcontractor. You could take a lot of comfort from going down the labour only route; with the subcontractor feeling very much like another, close-knit member of your team, however briefly, you might not see the need to treat them much differently to the rest of your recruits.

Nonetheless, as urged in this LinkedIn article, you must make sure that you hold employer’s liability cover and public liability cover which both cover the activities of that labour only subcontractor.

Would you need a different insurance strategy for a bona-fide subcontractor?

Yes, because the insurance implications would be markedly different. As that subcontractor will be working independently of your firm, the public liability cover you might have already taken out for people on your payroll might not account for this additional, momentary worker as well.

If you fail to check that this worker has the right public liability cover of their own, not to mention employer’s liability cover if this is also applicable, there could be serious repercussions for your business in the event that they make a mistake when carrying out work for you.

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In this instance, a blunder that inconveniences your client could see you, the company, deemed liable – even if the subcontractor was truly to blame instead. Therefore, you should insist on the subcontractor holding the relevant insurance before you hire them.

As explained in a Voltimum article, it should be possible for all subcontractors to show evidence of insurance letters for larger main contractors to check. However, don’t forget to take notice of the renewal date for that subcontractor’s insurance and record that date in a diary system.

Otherwise, without you noticing, that insurance could expire while the subcontractor is still undertaking work for you. This could ultimately prove a very worrying development if a claim needs to be made, but in relation to work completed when that valuable insurance was no longer valid.

Don’t shirk your insurance obligations if you are a bona-fide subcontractor

We’ve already shed light on why, as a bona-fide subcontractor, you would need suitable insurance before you undertake work in that capacity. However, if you have only just qualified as a trader or are only about to move into bona-fide work, you could understandably feel daunted.

We wouldn’t deny how time- and cost-intensive it can feel to work as a subcontractor. In the bona-fide line of work, you would have the responsibility of sourcing the materials, tools and equipment – and doing that could significantly and dauntingly deplete your bank account’s balance.

Furthermore, once you return home after a busy day, that could be just the crucial time to complete an invoice to send to the company that has been hiring you. Subcontractor life, then, can feel time-draining enough before you factor in the matter of insurance as well.

For subcontractors, it could undoubtedly come as a huge relief that appropriate insurance can be sourced time-effectively through the Tradesman Saver website. After completing an online quote form and sealing the purchase of your subcontractor insurance, you’ll be covered straight away.

Therefore, you don’t have to wait for printed documents to arrive in the post before you can start advertising yourself as available for work in the capacity of a bona-fide subcontractor. However, what exactly can you get with a subcontractor insurance package from Tradesman Saver?

That package will come with a range of automatic covers – including the aforementioned public liability as well as products liability, financial loss, legal expenses and accidental death covers.

You can pick from a palette of optional covers, too – including tools and equipment cover, which has obvious usefulness for bona-fide subcontractors, and personal accident cover. The application process all starts with clicking that orange “Get a Quote” button on the subcontractor insurance page of the Tradesman Saver website.