We are becoming increasingly concerned by the assumption by clients that, because their subcontractors hold their own insurance, they are regarded as ‘bona fide’. Insurers see bona fide subcontractors as only a contingent risk because, in taking on a job, they are bearing the public or product liability risk themselves, and so the cost of insurance is lower.
On the other side of the coin, with ‘labour only’ subcontractors, insurers take on the full risk of public, product and employer’s liability.
Care therefore has to be exercised when declaring the type of subcontractor you are using to undertake a project. Declaring subcontractors as bona fide when they are really labour only can lead to serious consequences.
Whether or not a subcontractor holds their own insurance policy should definitely not be considered a deciding factor. The following should assist you in understanding the differences between the two types of subcontractor so you can ensure you declare the right type:
Bona Fide Subcontractors
Bona fide subcontractors mean any company, firm or individual who enters into a contract for the provision of services, or the supply of goods or materials in conjunction with labour. However, this will not include any firm or individual who enters into a service contract with you for the supply of labour only.
Just because a subcontractor has their own insurance, does not mean they are bona fide. To be bona fide, they need to undertake their own risk assessment, provide their own method statement and be responsible for supervising the health and safety aspects of the contract. They will also provide their own materials and most of the equipment needed for the job and will be able to provide substitute workers should they not be able to fulfil the work themselves. They won’t work for you exclusively either.
In other words, they will handle and take full responsibility for the entire project. As an employer you will need to ensure this is absolutely clear by way of a written contract.
Labour Only Subcontractors
A labour only subcontractor is, as its name suggests, an individual or company supplying labour only, working under the direction and control of you as an employer who will take on the responsibility for risk assessments, method statements and provision of materials and equipment.
In insurance terms, a labour only subcontractor is regarded the same as any PAYE employee, even if they happen to be self-employed for tax reasons, and the risk to the insurer is the same. As an employer you have a statutory duty under Health & Safety law to protect labour only subcontractors the same as you would PAYE employees. So if an accident occurs and a labour only subcontractor is injured, employer’s liability insurance will cover any claim they make.
If you are in any doubt as to what you should declare when it comes to subcontractors, speak to us here at Robert Gerrard and we’ll clarify the situation for you.