Business Blog

Should You Invest In Sub-Contractors Insurance?

October 08, 2010

Determining whether you need to take out sub-contractors insurance is often a complicated area. Our guide below will help you assess if you need sub-contractors insurance.

Bona-fide sub-contractors (BFSC)

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 your direction, have their own legal liabilities and insure for themselves, there is no need to include them in the count of employees for premium calculation purposes (Employer’s or Public Liability).
Insurers are insuring your legal liabilities. If the act of a bona-fide sub-contractor produces a legal liability against you, then that is covered.
What insurers will not do is extend the policy to include the legal liabilities of the bona-fide sub-contractor – they should have their own Public Liability insurance in their own name. It should be noted that it is a condition of the insurance that you check that bona-fide sub-contractors have their own Public Liability cover to at least the same limit of indemnity as you before they appoint them.

Labour only sub-contractors (LOSC)

Labour only sub-contractors should be treated as employees for the purposes of cover under the sub-contractor insurance. Generally they work under the direction of the Insured and do not provide their own material or tools.

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 subcontractors to ensure that the cover provided by the sub-contractors insurance policy is adequate.

As 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:

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 themselves?
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?