Stay Insured With Subcontractors

Every business needs a helping hand sometimes. In an uncertain economy this can often mean outsourcing to subcontractors.

But do you know the legal risks involved with being or working with a subcontractor? Are you ready if anything goes wrong? Can you say with certainty you know the potential dangers of working this way?

No? Not sure? That's ok. Here at FSB Insurance Service we are always happy to help. So, sit back. Relax, grab a cuppa and soak in the FSB Insurance Service guide to working with a subcontractor.

What is a subcontractor and why is using them an advantage for Small Businesses?

Being a small business owner is hard. You have to be the CFO, CTO, COO, CEO, CMO, Chairperson, PA, Marketing Assistant, Handyman, Office Dog and more!

No one is an expert at everything, and it's ok to get help, but hiring an employee can be confusing and expensive. So, finding an experienced subcontractor to help with tasks can often be the right solution.

There are many advantages to taking on subcontractors. Let's explore the value subcontractors can bring to your company, and how they can benefit businesses. 

No holiday, sick or overtime pay

Reduced overhead costs

Better control of your staff budget

Instant access to specialist knowledge

Greater flexibility

But, did you know that not all subcontractors are created equally? Understanding different types of subcontractors is crucial to ascertaining what risks you are taking on.

There are two main types of subcontractors, Labour-only and Bone-fide. Not sure what the difference is? Don't worry we've got your back!

Labour-Only Subcontractors

A lot like it sounds, Labour-only subcontractors are people who you contract to act as extra labour.

A Labour-only subcontractor will work under your supervision and you will have certain responsibilities when working together.

You instruct the subcontractor on where and when to work

You make sure they get the right Health & Safety training

You supervise the subcontractor

You approve the subcontractors work for sign off

Payments made to them need to be included in the payroll figures declared to your insurer each year

You may be liable if a labour-only subcontractor injures a third party or damages property

You will liable for labour-only subcontractors in the same way as a direct employee. So make sure they are included on your insurance as if they were employees.

Labour-only subcontractors are often self-employed and have their own Public Liability insurance. But, it's important to remember that once the subcontractor is under your instruction they become your responsibility for Public and Employers’ Liability.

Failure to insure labour-only subcontractors properly could result in problems with your insurance policy and even a Health and Safety Executive penalty. So make sure you update your policy if needed!

Bona-Fide Subcontractors

Bona-fide subcontractors work under their own supervision and direction. Using their own tools, often brought in to undertake work which cannot be done directly.

They have the responsibility to decide how, when and where to work and would be paid once the work is completed. Bona-fide subcontractors are responsible for their own insurance.

In fact any subcontractor needs subcontractor’s liability insurance to protect their business against liability claims made against them.

The subcontractor chooses where and when to work

The subcontractor will invoice you for their work

You should ensure that the subcontractors Public Liability cover matches or exceeds your own

It is advisable to make sure that you make sure you have agreed a risk transfer agreement

Ask for proof that they and any of their staff are licensed and that they have public liability insurance before you hire them

Most Public Liability policies will include cover for Bona-fide subcontractors as a standard extension, subject to annual payments not exceeding a percentage of turnover and a requirement that you keep a record of their Public Liability insurance.

In some cases you may also need to ensure that the bona-fide subcontractors have a limit of Public Liability insurance which is no less than the limit on your policy.

So now you've had a crash course in insurance when hiring subcontractors for your business you'll know how important it is to correctly classify them.

Still confused? Want a friendly chat? Or you're ready to arrange insurance for your project? Please give us a call on 020 3883 7976 for free advice from one of our qualified brokers.