Determining whether a contractor is bona-fide or labour-only can be tricky for many firms working in the construction industry. With employer’s liability being a legal requirement for contractors utilising the services of labour-only contractors it is crucial that business owners know the difference.
Below we have provided a simple explanation of the key points of difference to help ensure you know whether you’re working with bona-fide or labour-only subcontractors.
We cover the following points:
- Defining a bona-fide subcontractor?
- Defining a labour-only subcontractor?
- Bona-fide subcontractor versus Labour-only subcontractor Checklist
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What defines a bona-fide subcontractor?
A bona fide subcontractor (BFSC) will be called in to complete a specialist job within a larger contract that the main contractor or their team of employees aren’t sufficiently skilled to complete. For instance, a building contractor erecting a new house will potentially require a host of specialist contractors to tackle the: electrical, heating, plumbing and roofing elements of the project as well as other relatively complex tasks.
Bona- fide subcontractors work without direct supervision from the main contractor on a set assignment. They will supply their own tools and materials. Upon completion of an agreed task, payment will be made on the basis of an invoice following the terms of a fixed-priced contract.
Bona-fide subcontractors should have their own liability insurance as they are classed as self-employed. The main contractor should verify that any bona-fide subcontractors they utilise has public liability insurance to a sufficient indemnity limit. This limit should be to the same or in excess of the cover provided by the main contractors’ policy and be sufficient for the job that they’ve been contracted to complete. However, the main contractor is not required to have employers’ liability insurance for bona-fide subcontractors.
What defines a labour-only subcontractor?
Labour-only subcontractors (LOSC) tend to be hired on to a project when additional assistance is required. For instance, a building contractor might be struggling to complete a house build project to schedule. They will draft in further resources on a temporary basis.
Labour-only subcontractors become part of another contractor’s team and work under their supervision. Tools and materials will be provided by the contractor overseeing the project. They will have their working hours, their place of work and daily workload determined for them. UK law determines a labour-only subcontractor to be an employee.
The main contractor is considered the labour-only contractor’s employer. This makes the main contractor responsible for the health and safety of the labour-only contractor in the workplace. The labour-only contractor will need to be covered under the main contractor’s employers’ liability insurance. This will cover the main contractor in the event that a labour-only contractor becomes ill or is injured as a result of the work they perform for them and decides to lodge a claim against the main contractor. The main contractor will need employers’ liability by law even if they hire a labour-only contractor to assist with a single project.
Bona-fide subcontractor versus Labour-only subcontractor Checklist
The below list will help you determine whether you are utilising a bona fide or a labour-only subcontractor.
Labour only subcontractor (LOSC)
- As a member of your team, ensuring the quality of their work is your responsibility
- Decide how, when and where their work is carried out
- Use your materials and equipment
- Do not have authority to employ others
- Do not have their own insurance, so will need to be covered by your public liability insurance and employers’ liability insurance
- Must follow your health and safety policies
- Do not have a guarantee for work done and can leave before a project is completed
Bona fide subcontractor (BFSC)
- Paid on a fixed-price contract rather than having an hourly, daily, weekly or monthly salary
- Have the responsibility for correcting unsatisfactory work
- Work without supervision or direction from a main contractor
- Provide their own materials and equipment
- Have authority to employ others
- Have their own insurance
- Supervise the work themselves
- Have contracts with their own employers
- Are responsible for their own health and safety matters, such as risk assessment
If you need contractors’ insurance and/or employers’ liability insurance for labour-only subcontractors speak to Plan Insurance Brokers expert team.