If you’re not sure of the difference between a labour-only contractor and a bonafide contractor, read on. In this article, One Guarantee sets out a simple guide to subcontractors and explains the key features of both types and explains what it means for your development project.
If you hire a subcontractor on a labour-only basis, they’re typically classed as a temporary employee. As such, they work under your instruction and direct supervision – they only provide your business with labour. You supply the tools, equipment or PPE they need to perform their role.
These contractors are independent and hired for a specific task. For example, you may hire a plumber or an electrician to work on a residential property development. Not only do they use their own tools and materials but they also conduct their own risk assessments.
Because they are independent, they are responsible for their employees and insurance. You must ensure they have a Liability Insurance policy that covers the activities they undertake.
It’s important to check that their Liability Insurance complies with any conditions within your own insurance policy.
In particular, look out for an ‘Indemnity to Principals’ clause. This protects the principal (often the end customer), outlining that if a claim is paid, the beneficiary of the policy will not necessarily be the policyholder, but the future homeowner.
If you need to make a claim, your insurer will ask for a copy of the bonafide subcontractor’s insurance policy. This will allow them to recover the claim from their insurer. As such, you must keep a copy of their insurance certificate for future reference.
If you’re unsure whether your subcontractor is labour-only or bonafide, consider the master (employer) / servant (employee) relationship defined by English law.
This is where tasks are performed by the employee under the supervision of an employer. In these cases, the subcontractor is classed as an employee (labour-only subcontractor), irrespective of tools and materials.
If they have been hired to complete a particular task and they can decide how to do it, they are likely to be a bonafide subcontractor.
It’s important to declare your use of subcontractors carefully and accurately. If you don’t, you may invalidate your insurance when making a claim. If you’re unsure, speak to your insurance broker straightaway.
Contact the team on:
The Guild office on 01273 478449 or email [email protected]
One Guarantee is a trading style of One Guarantee Ltd. Authorised and regulated by the Financial Conduct Authority.