When you run your own business, you cannot be too careful, and it’s important to know exactly what insurances you require and why.
In this quick guide you’ll discover the key differences between a labour-only subcontractor (LOSC) and a bona-fide subcontractor (BFSC), which will inform you of when and why you need certain types of insurance to ensure your business and the LOSCs you hire are protected.
In this guide:
A labour-only subcontractor (LOSC) will typically be hired to work on projects when extra help is needed.
This can be on a short-term basis to ensure building projects remain on-course to meet agreed completion dates. This can be common in the UK when adverse weather means building contractors are unable to work on-site and then need to play catch-up to complete the work on-time.
Labour-only subcontractors become an integral part of your team and will work under your supervision. They will use tools, equipment and materials provided by your business, and it will typically be your decision as to what their working hours will be, their work location and their daily tasks. As such, you become their employer.
Under UK law, a labour-only subcontractor is an employee. As their employer, you are responsible for the health and safety of your labour-only subcontractor while they are at work, which includes ensuring you hold employers’ liability insurance to protect your employee and your business in-case something goes wrong.
Typically, bona-fide subcontractors are specialists in a certain field and are hired to assist with projects, as part of a broader contract, to complete work that your company and your employees don’t have the skills to undertake. A good example of this is when a house builder calls in a plumber and electrician.
Bona-fide subcontractors work independently on set tasks without supervision or direction from your company. They supply their own tools, materials and equipment as required and are paid through and invoice, usually for a set quoted fee agreed prior to the contract for work starting.
Bona-fide subcontractors are self-employed professionals and are required to carry their own liability insurances. It is important you check their insurance credentials to ensure the work they are undertaking for you will be fully covered should something go wrong. At the very least a bona-fide contractor should hold public liability insurance with a limit of indemnity that is not less than your own level of cover.
As previously mentioned, if you’re hiring in bona-fide contractors they are required to hold their own insurances. If you are hiring-in labour-only contractors, then you must ensure they are added to your employers’ liability insurance policy and your public liability insurance policy. To do this you should inform your insurance provider of the additions to your workforce to ensure you have the correct level of cover in place.
Employers’ liability insurance covers your business if one of your employees sustains an injury in the course of their work, or if they fall ill due to the work, they do for you and decide to make a claim against you for compensation.
Employers’ liability insurance is a compulsory insurance requirement under the Employers Liability Act (1969) and is a criminal offence not to carry cover if you employ staff. The legal minimum of cover is £5million. Caunce O’Hara provide £10million of cover as standard as part of our Business Combined insurance policy.
If you don’t hold EL insurance when it is legally required, you run the risk of a fine. For each day you do not carry EL insurance you can be fined up to £2,500. Your EL certificate must be accessible to your staff and to health and safety (HSE) inspectors. If you don’t have a certificate of insurance that is accessible by staff, or if you refuse to make it available to HSE inspectors when they ask for it, you can also be fined up to £1,000.
At Caunce O’Hara we provide EL insurance as part of our Business Combined Liabilities policy, which can be purchased from £112.00 a year, depe3nding on your circumstances.
Bona-fide subcontractors vs labour-only subcontractors comparison checklist
|Bona-fide subcontractors (BFSC) = third party (not an employee)||Labour-only subcontractors (LOSC) = employee|
|Need their own insurance.||Protected by your company’s employers’ liability insurance and public liability insurance.|
|They decide how and when they carry out the work. Supervise their own work.||Their work is directed and supervised by you.|
|Paid for the job rather than by the hour or daily.||Typically paid by the hour, day, by the week, or monthly.|
|Typically have different/specialist skills to the company hiring them.||Usually have similar skills to the company employing them.|
|Treated as an independent third party (not an employee).||Treated as employees, as such they may be entitled to certain employee benefits.|
|Have the authority to employ others.||No authority to employ others.|
|Responsible for their own health and safety measures, e.g.: risk assessments.||Must follow your health and safety measures.|
|Responsible for correcting unsatisfactory work.||Do not have a guarantee for the work undertaken and can leave a project before it is completed.|
|Provide their own tools, materials and equipment.||Use your company’s tools, materials and equipment.|
Read on to discover how these key differences can affect your insurance…
We’ve established you need employers’ liability insurance in place if you hire labour-only contractors. We’ll now look at why you need EL insurance and if there are any other types of insurance protection you should consider and why.
Including your sub-contractors when answering questions for your insurance quote
When answering questions about your insurance for a new quote or your renewal, ensure you include the LOSCs you work with. You may only collaborate with them a handful of times each year on ad-hoc projects, but at least this will ensure your business and the LOSCs are covered.
If a permanent employee is injured by another permanent employee, the injured party can make a personal claim against the employee who caused the injury. Both will be covered by the company’s employer’s liability insurance, so the employee who caused the injury doesn’t need to worry about being personally liable.
LOSCs can be considered in the same way for the purposes of insurance.
BFSCs are considered separate and are not covered by the company’s insurance, so are required to carry their own insurance protection in case of an accident resulting in claim.
If an employee is injured by a BFSC, the incident will not be covered by the company’s employers’ liability insurance, because BFSCs are not classed as employees.
For this incident, the injured employee would need to make a claim against the BFSCs public liability insurance. If the BFSC did not have public liability insurance in place, the injured employee could still pursue legal action against the BFSC, and the BFSC would be liable for any compensation claim out of their own pocket. Depending on the extent of the injury, this could range from a few hundred pounds to a few thousand!
If an employee injures a BFSC, the BFSC would need to make a claim against the public liability insurance of the employees’ business, because the BFSC is classed a s a third party. BFSCs must be diligent and make sure the company hiring their services is holding public liability insurance before starting work for them.
What happens if a sub-contractor injures a member of the public?
If an LOSC injures a member of the public, the LOSC will be covered under the hiring company’s public liability insurance.
If the hiring company doesn’t have public liability insurance and the LOSC injured a member of the public, he injured party could act against the LOSC personally or the against the hiring company – or against both. So, it’s important for LOSCs to check hiring companies have public liability insurance in place before starting work for them.
If a BFSC injures a member of the public, both they and the hiring company will need to ensure they have public liability insurance in place to be certain of being covered in the event of a claim.
Tools belonging to LOSCs will be covered under the hiring company’s tools insurance because they are classed as employees. BFSCs would need their own tools insurance.
Find out more about our tradesman insurance and the popular trades we cover, including: