Bona Fide vs. Labour-only subcontractor - know the difference

If you’re involved in any kind of contracting, you’ll probably have been asked about payments you make to subcontractors and whether they’re a bona fide subcontractor or labour only subcontractor. Brokers are frequently asked about the difference, and their own liability insurance versus the company's employers liability insurance or public liability is an important distinction.

So to help clarify things, here is a simple guide:

Bona fide subcontractor definition

A bona fide subcontractor (or bona fide sub contractor) normally works under their own direction and supplies their own tools and own materials.

Labour only subcontractor definition

A labour-only subcontractor normally just supplies their labour and works under the direction of their employer. They don't usually provide their own materials.

How subcontractors impact your insurance

Labour only subcontractor agreement UK: employers liability cover

From an insurers’ perspective, labour-only subcontractors are regarded as employees for the purposes of employers liability insurance. Payments made to them need to be included in the wage roll figures declared to your insurers each year. Bona fide subcontractors should have their own insurance for contractors, so their payments aren’t normally allowed for, in the same way in calculating premiums.

Bona fide subcontractor payments: public liability cover

When it comes to public liability insurance and products liability, bona fide subcontractor payments may still be taken into account in the premium calculation. However, the assumption is that they’ll have their own public liability insurance policy in place, so that any claims for their work can normally be passed back onto their insurers. This not only lowers the risk for the main contractor’s insurers, but also lowers the rate charged by your insurers.

Health and safety policies

You have responsibility for your workers' health and safety on site, and this includes labour only subcontractors - they must follow your health and safety policies. Bona fide subcontractors however, are responsible for their own health and safety and should undertake their own risk assessments.

How can you tell which type of contractor is which?

Some other points that can help decide which category your sub-contractors fall into are:

• How they’re paid
  Contractors paid by the hour, day or week are more likely to be considered labour-only. Bona fide sub-contractors tend to quote for a job with a fixed price contract and invoice it, either on completion or in stages.
• Flexibility on the job
  If you’re able to reassign roles to an individual contractor, they’re more likely to be a labour-only subcontractor.
• Responsibility for additional costs
  If your contractor is obliged to correct any problems with their work without billing you for the extra time, and if this extra cost or any other situation where they’ve underquoted would cause adverse risk to their earning, they’re most likely to be a bona fide subcontractor.

This brings us to a very important aspect…

Your responsibilities to subcontractors

Many contractors’ policies have a subcontractors clause, which requires you as an employer to ensure that your bona fide subcontractors have their own cover in force, often to a set indemnity limit. Depending on the type of work, this may be Employers Liability, Public and Products’ Liability, Contract Works and/or professional indemnity cover.

As brokers, we’re often asked to produce evidence of insurance letters for our clients to pass to larger main contractors. However, even smaller contractors should be checking that they’re only employing subcontractors with the necessary cover in place.

In order to remain compliant, it’s advisable to consider a diary system which flags up your subcontractor’s insurance renewal dates. You can then update their details annually and ensure you continue to comply with your own insurer’s requirements. Failing to do this could have serious implications in the event of a claim.