Definition of Sub Contractors

The following information is intended to explain the different types of sub contractors and how they are categorised by insurance companies for purposes of determining whether Employers Liability Insurance is required.

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Bona Fide Sub Contractors

Bona-fide sub-contractors are generally deemed to be contractors who work without direction from the Insured, hold their own insurance and usually provide their own materials and tools.
As long as they are not working under the direction of the Insured, have their own legal liabilities and insure for themselves, there is no need to include them in the count of employees.
What insurers will not do is extend the insured’s policy to include the legal liabilities of the bona-fide sub-contractor – they should have their own public liability insurance in their own name. 
Please note that it is a condition of most insurance policies that the Insured (the main contractor) checks that bona-fide sub-contractors have their own public liability cover to at least the same limit of indemnity as the their own before they appoint them.

Labour Only Sub Contractors

Labour only sub-contractors should be treated as Employees for the purposes of cover under this type of insurance. Generally they work under the direction of the Insured and do not provide their own material or tools (with the exception of small hand tools). Cover would therefore be arranged for LOSC by the main contractor under their policy.

Determining BFSC or LOSC status

Whilst it is difficult to provide an accurate definition, it is important to try and correctly determine the status of sub-contractors to ensure that the cover provided by the policy is adequate.

A general guide as to whether a worker is a LOSC or BFSC:

If the answer is ‘Yes’ to all or most of the following questions, then the worker is probably a LOSC and would need to be covered for employers liability insurance:
  • Are they paid by the hour, week, or month?
  • Can they receive overtime pay or bonus payment?
  • Do they only supply their own small hand tools?
  • Do they always have to do the work themselves?
  • Can the principal contractor tell them at any time what to do, where to carry out the work or when and how to do it?
  • Can they work a set amount of hours?
  • Can the principal contractor move them from task to task?
If the answer is ‘Yes’ to all or most of the following questions, then the worker is probably a BFSC:
  • Do they agree to do a job for a fixed price regardless of how long the job may take? 
  • Do they have a contract of service as opposed to a contract of employment?
  • Within an overall deadline, are they able to decide what work to do, how and when to do the work and where to provide the services? 
  • Do they regularly work for a number of different people other than the principal? 
  • Do they have to correct unsatisfactory work in their own time and at their own expense? 
  • Do they hold their own public liability insurance in their own name? 
  • Do they pay the cost of all materials or supplies required for the work without being reimbursed? (excluding minor items and consumables).
  • Can they hire someone to do the work or engage helpers at their own expense? 
  • Do they risk their own money e.g. if they bid for a job and the bid is too low they have to bear the additional cost ? 
  • Do they provide or hire in the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves? 
There is no legal requirement for a self employed sub contractor to have insurance, but it may be a condition of the contract they have with a main contractor that they must have it in place before start work for them.