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Navigating Subcontractors and Your Insurance Obligations

If you run a business and bring on subcontractors, you need to understand how that impacts your insurance responsibilities. Getting this wrong could leave you facing substantial fines or without cover should something go awry. This blog breaks down the key things you need to know.


What's the Difference Between Subcontractor Types?


There are two main subcontractor categories - bona fide subcontractors (BFSC) and labour-only subcontractors (LOSC).


The key differences:


  • Supervision: LOSCs work under your supervision, while BFSCs work independently.

  • Tools/Materials: LOSCs use your business’ tools and materials; BFSCs use their own.

  • Payment Method: LOSCs are paid hourly or regularly by you. BFSCs invoice you for services rendered.

  • Hiring: BFSCs can hire other people to assist; LOSCs cannot.

  • Insurance: BFSCs have their own insurance. LOSCs are covered under yours.

Knowing these differences is crucial for insurance purposes.


How Subcontractors Affect Your Insurance


Since you treat LOSCs as employees, you must have employers' liability insurance to cover costs if they are injured on the job. Notify your insurer if you take on more LOSCs as it could impact your premium.


With public liability insurance, LOSCs should be covered under your policy if they cause injury/damage. For BFSCs, check they have adequate public liability cover themselves. Many insurers require it matches or exceeds your level.


Some insurers also mandate BFSCs have "indemnity to principal" clauses so any claim payouts go directly to the injured party, not the subcontractor.


Fines for Non-Compliance


Don't let insurance slip through the cracks. You can face major fines if:


  • You should have employers' liability insurance but don't. Penalties are £2,500 per day uninsured.

  • You don't display/make accessible your employers' liability certificate. Fines up to £1,000.

Staying on Top of Your Obligations


Following best practices around subcontractors and insurance can spare you significant headaches:


  • Clarify if they are a BFSC or LOSC so you know if they fall under your policies. Ask questions if unsure.

  • Advise insurer promptly when hiring more LOSCs as it impacts premiums.

  • Verify BFSCs have adequate public liability cover (with indemnity clauses if required).

  • Prominently display employers' liability certificate as required.

With some diligence on insurance obligations, you can work confidently with subcontractors.



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