Among the policies you will need is employers’ liability insurance, for both your permanent employees and relevant contractors. However, you must be aware of the differences between types of contractor, and ensure your policy covers all workers that require it.

What are contractors?

A contractor can be:

• Self-employed
• A worker or an employee (working for a client and employed by an agency)

There is also special scheme for self-employed contractors and sub-contractors working in the construction industry, called the Construction Industry Scheme (CIS).

There are two types of subcontractors, both with different requirements under employers' liability insurance. These are bona fide subcontractor and labour only subcontractors.

What is a bona fide subcontractor?

A bona fide subcontractor should be working under his or her own direction, use his or her own tools and materials, have his or her own liability insurance and understand his or her legal liabilities.

In this case, there is no need for employees of the bona fide subcontractor to be included in employers' liability or public liability premium calculations. However, just because a subcontractor has their own insurance, this does not automatically mean they are bona fide. To guarantee that they are, they must assume full responsibility for the entire project, including risk assessments, method statements, and health and safety aspects of the contract.

Most liability insurance policies require you confirm your bona fide subcontractors have equivalent level of public liability insurance as you. You should therefore ensure this is absolutely clear in a written contract with your bona fide subcontractor.

What is a labour only subcontractor?

Labour only subcontractors work fully under the direction of the contractor. They are provided the materials to work with; given detailed instructions of what to do, and then supervised; and have to comply with health and safety arranged for them.

Under UK law, if you use a labour only subcontractor they count as your employee, and you as their employer take on the full risk of public, product and employers' liability. They must therefore be included in your employee insurance calculations even if they hold their own separate insurance policy, as this will not be valid under the terms of the work you have employed them for.

The difference between labour only and bona fide subcontractors

It is likely they are a bona fide subcontractor if:

• They are on a fixed-price contract irrespective of what is needed to get the job done
• They are on a service rather than employment contract
• They decide their own hours, and how, when and where to do the agreed work
• They work for other parties as well as the main contractor
• They are obliged to correct any quality issues at their own time and cost
• They can prove they have insurance for public liability
• They cover expenses for materials, tools, etc. used for the work
• They can employ additional assistance if needed, at their own cost
• Their earnings are at risk if they price the job incorrectly

It is likely you employ a labour only subcontractor if:

• You pay the person hourly, weekly or monthly
• You can pay the person overtime or bonuses
• You supply the majority of their tools
• They do all the work required of them by themselves
• The main contractor directs them how, when, where and at what time they should do work
• They work a fixed number of hours
• The contractor can reassign them to another task

Employers' liability insurance for labour only subcontractors

It is crucial to ensure you have the right employer’s liability insurance to cover the right subcontractors. Even if you hire a non-PAYE worker, you should still double-check, as while PAYE is regulated by HMRC, employers’ liability insurance is regulated by the HSE. Therefore, a worker can be not classed as an employee for PAYE purpose, but be classed as an employee for employment law.

For more information on status of workers, see the UK government’s rules on employment status.

With Towergate’s employers' liability policies, labour only subcontractors are automatically covered in the same way as direct PAYE staff. However, while we can cover both types of employees for the same risks, it is very important to be aware of and to declare how your workforce are employed, as this will affect how your risks are calculated.

Find out about employers’ liability insurance from Towergate

We offer specialist employers’ liability insurance tailored to your business’s needs. Contact our tradesman insurance team today for a quote on 0344 346 0409 or enquire online.

About the author

Mike Stephens is a respected senior industry professional and Fellow of the Chartered Insurance Institute (CII) with well over 40 years’ varied experience in the commercial insurance sector as a director, underwriter, and operational improvement manager.