Subcontractor’s Liability Insurance & why it matters


Due to the nature of the construction industry, many of the people involved are doing so on a subcontract basis. It makes sense to operate in this way because people are often only required on a short-term basis for specific projects. Using subcontractors means that contractors can bring people in to work on jobs only when they are needed.

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However, this introduces a number of issues from both an employer’s liability insurance and a public liability insurance perspective that contractors need to bear in mind.

Employer’s liability insurance

Anyone who employs someone is legally required to have employer’s liability insurance. There is a grey area when it comes to the construction industry, though, in terms of whether a subcontractor is or isn’t an employee. This is because some subcontractors – labour-only subcontractors – are treated in law as though they are employees, even though they invoice for their time rather than being paid via your PAYE payroll scheme.

There are a number of tests that determine whether a subcontractor is a labour-only subcontractor or a bona fide subcontractor and each situation will be treated on its merits. However, as a general guide, a labour-only subcontractor will work directly under your supervision using your materials, equipment and tools, although they may use their own hand tools. If they fit this description, employer’s liability insurance will be required.

A bona fide insured subcontractor will be told what they are required to do rather than how they are expected to do it, and will generally supply their own materials and tools to complete the job. Employer’s liability insurance is not required for bona fide subcontractors.

Any contractor that uses labour-only subcontractors must have employers’ liability insurance, even if they don’t have any actual employees on their payroll for PAYE payroll scheme purposes. If all of the people working for the business are bona fide subcontractors, though, employer’s liability insurance is not required.

Public liability insurance

If a subcontractor injures a third party or damages their property, that third party will probably claim against you rather than the subcontractor that caused the accident, because you are in charge of the work site.

If a bona fide subcontractor caused the accident, your insurer will pass the claim on to that bona fide subcontractor’s insurer. But it’s important to check that your bona fide subcontractors have their own subcontractor’s public liability insurance with adequate indemnity limits to deal with these claims, and that their insurance covers the activities that they are engaged in.

In fact, it is often a condition in most contractors’ public liability insurance policies that bona fide subcontractors have public liability insurance of their own. You should have a system in place to check their insurance, either by checking the actual policies or by getting confirmation of cover from their insurance broker. You should keep records of their insurance. These records need to be held for several years because liability claims can be made against you several years after the accident that led to the injury or damage occurred.

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A contractor’s public liability insurance will also provide what is known as “contingent liability” cover. This means that if a claim arises due to something that a subcontractor has done, the contractor is covered even if the subcontractor has no insurance of their own. To make sure that your insurer will cover these contingent liability claims, it’s important that you tell them that you are using subcontractors as part of your business. You should also declare all of your payments to labour-only and bona fide subcontractors.

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