Construction projects, no matter the size or scope, can be significant undertakings full of challenges. One such challenge that you may encounter deals with what type of subcontractors you hire—specifically labour-only (LOSCs) or bona-fide (BFSCs). Knowing the differences between these two classifications can help protect your business from costly and damaging risks, including fines, penalties or even whopping insurance claims.

The defining characteristics of LOSCs are as follows:

They work under your supervision and direction.
They use your materials, kit, equipment and tools.
They must comply with your health and safety policies.
They do not have a guarantee for work done and may leave part way through.
Essentially, labour-only subcontractors are additional employees that you hire to assist with a build project. As these subcontractors are employed for the duration of the build project, you are required to pay them the same wages as your full-time staff and to classify them as employees. In addition, your firm must cover each labour-only subcontractor under your employers’ liability and public liability insurance.
The defining characteristics of bona-fide subcontractors are as follows:

They work under their own supervision and direction.
They provide their own materials, kit, equipment and tools.
They are responsible for their own health and safety.
They may have additional employees.
They provide their own method statement and are responsible for their own guarantees and maintenance.
Essentially, BFSCs are hired to complete a specific job—such as plumbing or electrical work—on a build project that your full-time staff is not capable of completing on its own. As your firm would be hiring them on for a specific job, you would pay them as if it were a normal separate job, typically via invoice. In addition, because they are working independently of your firm, bona-fide subcontractors must have their own liability insurance.
What are the Risks of Confusing the Two?
Even though both subcontractor classifications are similar, confusing the two can expose your firm to costly and damaging risks. The most common risks include the following:

A BFSC has insufficient or no employers’ liability or public liability insurance. As a result, after an incident, your firm is liable even though the subcontractor was at fault. For example, a BFSC carried out plumbing work which was faulty, leading to a substantial escape of water. Their insurance only covered them for their declared trade as a carpenter/joiner, so they were not insured for plumbing work. In another case, a BFSC defaulted on a premium instalment plan, leading to cancellation of their cover but they still had the original insurance certificate.

You had not notified your insurers about hiring labour-only subcontractors so they were not covered under your employers’ liability or public liability insurance. As a result, if they were responsible for an incident or become injured or ill due to their work, you could be wholly accountable for the damages.
To guarantee that you are safeguarded against the potential risks that can arise from taking on subcontractors, review the following best practices:

Contact us to ensure that your employers’ liability and public liability insurance covers LOSCs.
Confirm that bona-fide contractors have their own public liability and, where relevant, employers’ liability insurance. Even if they are insured, you should verify that they have at least the same indemnity limits as your policy, as you could potentially be liable to fill the gap.
Annually review your BFSCs’ public liability schedule to ensure that you’ll be protected if they were to cause an incident while working for you.
Let us know how much you intend to pay your BFSCs, as it may lower your premium as well and ensuring that your cover is in order.
If you can answer yes to all or most of the following questions, the worker is probably labour-only:

Are they paid hourly, weekly or monthly?
Can they receive overtime or bonus pay?
Do they work a fixed number of hours?
Can the principal contractor direct them how, when and where to carry out their work?
Can the principal contractor direct them from task to task?
If you can answer yes to all or most of the following questions, the worker is probably bona-fide:

Are they paid on a fixed-price contract?
Do they decide their own schedule?
Do they decide what, how, when and where to do their work?
Are they responsible for correcting unsatisfactory work?
Do they work without supervision?

Understanding this simple difference can save you from a major headache and significant financial loss.