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

If you’re involved in contracting, you’ve probably been asked about the payments you make to subcontractors. You may also need to clarify whether they are bona fide subcontractors or labour-only subcontractors.

Brokers are often asked about the difference between the two. Additionally, understanding their own liability insurance compared to 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 normally works under their own direction and supplies their own tools and 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

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

When it comes to public liability insurance and products liability, bona fide subcontractor payments may still be taken into account in the premium calculation. Yet, 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 reduces the risk for the main contractor’s insurers but also lowers the rate charged by your own insurers.

Health and safety policies

You are responsible for your workers' health and safety on site, which includes labour-only subcontractors. They must adhere to your health and safety policies.

Bona fide subcontractors however, are responsible for their own health and safety and should conduct 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:

1. How they are 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.

2. Flexibility on the job 

If you are able to reassign roles to an individual contractor, they are more likely to be a labour-only subcontractor.

3. Responsibility for additional costs 

If your contractor is required to fix any issues with their work without charging you for the extra time, they are likely a bona fide subcontractor. Additionally, if this extra cost or any situation where they’ve underquoted poses a risk to their earnings, it further supports this classification.

This brings us to a very important aspect…

Your responsibilities to subcontractors

Many contractors’ policies include a subcontractors clause that requires you, as an employer, to ensure that your bona fide subcontractors have their own coverage in place. This coverage is often required to meet a specified 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.

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.