If you own a business and you’re looking to purchase an adequate insurance policy, you can often find yourself within a grey area when it comes to your subcontractors. This guide will help you get to the bottom of the insurance game, whether you’re a builder working in the construction industry or you’re self-employed. One of the most pressing questions that business owners have is how to protect themselves when hiring subcontractors. Where does the liability rest if the subcontractors damage a property you’re working on or a third party is injured at work? Take a look below to find out everything you need to know about subcontractor insurance.
What is subcontractor insurance?
To answer this, we first of all need to define exactly what a subcontractor is. There are essentially two types of sub-contractors – ‘labour-only’ subcontractors (LOSCs), and ‘bona-fide subcontractors’ (BFSCs). LOSCs work under the direction of the main contractor, and are deemed to be employees. Subsequently, they will not have their own insurance. BFSCs, on the other hand, supply their own materials, and work under their own control, so should possess their own insurance. Electricians and plumbers are typical examples of tradespeople who operate as BFSCs, when hired on a subcontract basis.
However, within the construction industry, many businesses use subcontractors to carry out their labour because of the short-term workloads demanded within the industry. The result is that contractors only bring in subcontractors as and when they’re needed. This has also led to some confusion surrounding the insurance that a business must acquire for this sort of work.
You’ll be well aware by now that businesses are legally required to possess employers liability insurance to cover any claims made against them from within their business. And although not compulsory, public liability insurance is also necessary if you’re hoping to enjoy cover in the event of a third party claim.
Subcontractor insurance is therefore similar to the third-party public liability insurance a BFSC will possess while working for a larger company. If there’s been a claim made against your business, but the fault rests with the subcontractor, then your insurance provider will contact the subcontractor’s insurance provider to deal with the claim, providing the contractor has an adequate insurance policy. If you have hired LOSCs, then your subcontractor insurance will cover you for the work they do while technically in your employment.
What are the benefits of subcontractor insurance?
There are several different benefits that come with one of your subcontractors possessing an adequate insurance policy, and not all of these are entirely financially motivated. While money is, of course, involved in any type of cover, peace of mind and the ability to run your business effectively are the more tangible aspects of every policy.
Whatever type of business insurance you possess, whether that’s the law abiding employers’ liability insurance or the optional public liability insurance, possessing these plans will establish your business as a more reliable and trustworthy outfit.
The construction industry is made up of varying levels of contractors and subcontractors who each have a set of sub-contractors working above or below them. To secure the best contracts, you’ve got to have a good reputation and possess the adequate business insurance that will assure you’re covered in the event of injury to your own employees or third parties such as sub-contractors or members of the general public.
If you possess public liability insurance, your insurance provider will generally pass on the claim to the sub-contractors, providing they have subcontractor insurance. Prior to hiring a subcontractor, you should always ensure that they possess adequate insurance with a suitable amount of indemnity to cover the size of the claims that would likely occur in relation to your business.
The indemnity of your insurance policy is the amount of money that the provider will be willing to pay out, if a claim is made against your business. So, it makes sense to find subcontractors with indemnity insurance that match the scale of your business or construction project.
Create a written contract
When you’re a new or existing business looking to establish good working practices and protect yourself against any claims, the first channels you should look down would be ensuring that all your subcontracts possess accurate levels of insurance. Secondly, always make sure you have a written contract between your business and any sub-contractor, stipulating the terms of your agreement in addition to any insurance agreements that may be necessary. This means that if something does go wrong, and a claim is made against you, you will be protected by law depending on what was written into the contract.
Make sure they have suitable qualifications and experience
Another way that businesses can protect themselves when hiring sub-contractors is by ensuring that the subcontractors they are working with are fully qualified to do the job they are hired to do. Before hiring and agreeing on contracts always check your sub-contractors for certification as well as seeking testimonials from customers or employers who have worked with them before. If you perform this due diligence before you begin the work, the chance of you facing costly insurance claims further down the line is reduced.
Other avenues you could investigate are licensed tradespeople bodies, for instance, Gas Safe for any heating engineers employed to work on the site, or even sites like Checkatrade. While the skills the subcontractors display while working for you will be the real test of their capabilities, a little research into their credentials beforehand never goes amiss. However, as it’s your business, and your livelihood that’s on the line, the best method of protecting both is by ensuring you are adequately covered for all eventualities. At Tradesman Saver, we offer a selection of subcontractor insurance plans with varying indemnities perfect for businesses both old and new; looking to grow and develop their capacities for contracts.
Once you’ve got your employers’ liability insurance, it’s time to look into purchasing some public liability insurance to ensure you’re covered in the event of a third party claim. Although public liability insurance isn’t a legal requirement in the UK, if both contractor and sub-contractor possess this insurance, you’ll have fewer worries about being accosted for large pay-outs, whether that’s third party medical bills, court fees, or damages. Visit Tradesman Saver today for all your business insurance needs and queries.