Labour-only or Bonafide? Do you know your subcontractors?
Unsure of the differences between labour-only and bonafide subcontractors? We explore the key points and what they mean for your development project.
What are labour-only subcontractors?
They are classed as temporary employees who work under your instruction and direct supervision. As the name implies, they only supply labour to your business. They don’t bring any tools, equipment or PPE; this is supplied by you.
What is a bonafide subcontractor?
They are independent contractors hired for a specific task. For example, you may hire a plumber or an electrician when building a new home. They provide their own tools and materials and carry out risk assessments in the course of completing their work.
It’s important to note that they are also responsible for their employees and insurance. As such, you must make sure that they have a valid Liability Insurance policy that covers them for the activities that they are undertaking.
What should be included in their Liability policy?
It must meet the requirements of any conditions relating to the checking of bonafide contractors’ insurance within your own policy.
It should also include an ‘Indemnity to Principals’ clause. This protects the principal (often the end customer) by 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 seek recovery of the claim from their subcontractor’s insurer. As such, you need to retain a copy of their insurance certificate for future reference.
How to tell the difference between subcontractors
It can be hard to decide if they are a labour-only subcontractor or a bonafide subcontractor. Just because they brought their own tools, it doesn’t mean that they are a bonafide subcontractor.
If you’re unsure, consider the master (employer) / servant (employee) relationship outlined by English law. This is where tasks are performed by the employee under the direct supervision of the employer. In instances such as these, the subcontractor is classed as an employee (labour-only subcontractor), irrespective of who supplies the tools and materials.
If they have been contracted to complete a specific 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 correctly. Failure to do so could invalidate your insurance when you come to make a claim. If you’re unsure, speak to your insurance broker straightaway.
Find out more
Speak to our sister company, One Broker, to find out more about your insurance needs when working with subcontractors.