5 ways a HardHats contract protects your business

by | Jan 21, 2023

Many payroll companies would have you believe the only way to use subcontractors long-term is to use a payroll company, but it isn’t.

You can work with self-employed subbies for as long as you want, as long as you can demonstrate they are genuinely self-employed.

But if you are simply trying to disguise your employees as subbies to get out of honouring their statutory employment rights or to hide their actual tax status, then you could be at risk.

How does employment law affect businesses that use subcontractors?

Self-employed people do not have the same employment rights as employees. An employment contract entitles employees to things like minimum wage, holiday pay, statutory redundancy payment, sick pay or parental leave. Self-employed workers do not have these rights.

And the way they pay tax is different. Employees pay tax and national insurance contributions through their employer. The deductions are made by the employer and then passed on to HMRC before the employee receives their wage or salary.

In contrast, self-employed workers are responsible for paying their own taxes and national insurance. They are required to file a self-assessment tax return at the end of the tax year and then pay what they owe to HMRC.

Subcontractors are classed as self-employed and, therefore, do not have the same employment rights or tax status as employees. This is the case regardless of whether they operate as a sole trader or a limited company, whether they work in the public or private sector, or whether they work for a single client or several different clients.

Some employers are dishonest about the employment status of their workers. They don’t want to employ their workers because then they will be eligible for statutory employment rights.

However, if a self-employed person disputes their employment status (or if HMRC decides to dispute their employment status), businesses can receive large fines and be instructed to pay backdated taxes and any payments the worker would have been entitled to under employment law and the Employment Rights Act.

This is why it is important to be honest about the employment status and tax status of your subcontractors.

Who determines employee employment status?

Self-employment means you work for yourself – you are a business in your own right and do not have the employment rights you would have if you were employed. However, there are some advantages to being self-employed and some subcontractors prefer to be classed as self-employed individuals for tax purposes.

But employee employment status is not determined by your subcontractors. It is determined by you – the main contractor. And it is you who will be liable for any fines if their legal status is disputed.

Therefore, the determination should not be made just to keep subbies happy or to get out of your legal obligations as an employer. The determination should be made based on whether your workers are genuinely self-employed or not.

If HMRC opens an enquiry into employment status, they’ll look at the working relationships between you and your subbies to ensure they are operating as a separate entity. And if you have a written contract, they’ll want to make sure this matches up with reality.

If they believe you are deliberately hiding the true worker status of an employee for tax purposes or to avoid honouring statutory employment rights, they’ll reclassify them as an employee.

How can a HardHats subcontractor agreement protect your construction business?

What we offer is pretty simple – we create bespoke subcontractor agreements and get your subbies to sign them electronically.

All our agreements are underwritten by Markel – a multi-billion-dollar international insurance company specialising in ‘hard-to-place’ risks. We refer to this as our employment status guarantee and we’re the only company in the UK doing what we do for the construction industry.

And what does that mean for you?

It means our bespoke subcontractor contracts can protect your business by:

  1. Demonstrating to HMRC that your subbies are genuinely self-employed
  2. Removing ambiguity between you and your subbies
  3. Reducing your liability if subbies let you down
  4. Providing you with cover even if your subbies don’t sign
  5. Insuring you against any enquiries into employment status

Let’s take a look at each of those in a little more detail so you can see exactly why working with us is a no-brainer.

Demonstrate to HMRC that your subbies are genuinely self-employed

We’ve written numerous posts on how HMRC determines employment status and the case law around it, so we aren’t going to go into huge amounts of detail again here, but a lot of it comes down to the three tests:

Our contracts ensure you’re covered in each of these areas by outlining exactly how you work with your subbies and providing legitimate commercial reasons for why you work the way you do.

Even if your subbies drive your vehicles, wear your uniform and use your tools, we can still prove to HMRC that they are genuinely self-employed, meaning there is no reason to question their employment status.

If you’re curious about how we do this, check out our article on what needs to be in a subcontractor agreement or grab yourself a copy of our free book.

Remove ambiguity around the working relationship between you and your subbies

You might have a fantastic relationship with all your subbies, but that doesn’t mean you’ve discussed the finer details of the working conditions.

What happens if a subcontractor gets sick halfway through a job? Can they send a substitute in their place?

And what happens if they use a piece of your equipment and it goes missing from site? Who is responsible for funding the replacement?

How about if they get offered a great opportunity somewhere else? Can they leave without notice?

Our contracts remove any ambiguity between you and your subbies, ensuring everyone is clear on payment terms, responsibilities, and expectations. This protects you and your subcontractors and reduces the likelihood of misunderstandings or disagreements.

No matter how great your relationship is now, the last thing you want is a disgruntled subcontractor claiming they were unfairly dismissed and dragging you to employment tribunals because you “breached their employment rights”.

Reduce your liability if subbies let you down

Imagine you’ve got a job that needs to be completed by Friday. But because you’ve been busy chasing your tail, you’ve not had a chance to visit site to check progress. The subbies you’ve had working on the job have jumped ship to another firm and left you with a complete shitshow.

You try to withhold final payment, but you have nothing in writing that says you can, so the subbies threaten legal action against unlawful deductions. And you’re left to suck it up and foot the bill.

But not if you have a HardHats contract containing this simple clause:

“Should this Agreement be terminated for any reason, the Contractor reserves the right to retain any final payment due to the Subcontractor for a period of 28 days. Both parties agree that this is to be held as a retention and should any defects in the services provided by the Subcontractor arise during this period, then the Subcontractor shall at his own expense return and make good such defects as soon as reasonably practicable after receiving notification from the Contractor.

Should the Subcontractor not comply in making good such defects within a reasonable period of time, the Contractor shall be permitted to deduct any costs incurred in rectifying such defects from any final payment held and due to the Subcontractor.”  

You might still have to clear up the mess left by your subbies, but at least you’ve reduced the financial cost.

And guess what? This isn’t the only clause we have up our sleeves to protect you and your business from unscrupulous subcontractors.

We take care of getting your contracts signed

You might be reading this thinking it all sounds good, but it’s unlikely your subbies will agree to sign anything formal. And even if they are prepared to sign, have you really got time to go from site to site getting signatures?

Good news. We’ve got you covered there as well.

All we need is a mobile number and/or email address for each of your subbies, and we’ll send them a link to your contract so they can view and sign electronically.

Our system tracks every message we send to your subbies and lets us know if and when they have viewed and signed the contract. If a subcontractor doesn’t sign, we’ll send gentle reminders until they do.

Plus, you have complete access to the system so you can see exactly who has and hasn’t signed. And that’s not all – you can add other documents too (insurance policies, training certificates, subcontractor payment details). Use it as a subcontractor management tool – everything you need in one secure place.

Employment status enquiries are handled on your behalf

Should HMRC ever raise a query about how you work with subcontractors, we’ll let you know exactly how to respond.

If they ever open an enquiry into the employment status of your subbies, we’ll handle it on your behalf.

And remember our employment status guarantee? Well, it means that if any of your subbies are ever reclassified as an employee (unlikely), we’ll cover any associated costs.

It all comes back to that leading insurance firm we mentioned – Markel. They have a history of successful self-employment cases against HMRC and underwrite all our contracts before the guarantee is issued. And because they are involved from the start, they will never fail to pay should HMRC reclassify your subcontractors.

Get started with HardHats protection

If you regularly work with the same subcontractors and are worried about leaving yourself open to risk, let us help.

We’re not a payroll company or employment business – we don’t take control of your payroll or charge your subbies a fee to access their wages. And we don’t source subbies for you.

What we do is find out how you work with subcontractors (and you have to be honest with us), and then we create a bespoke written contract documenting that working relationship. We cover it with our insurance-backed employment status guarantee and get all your subbies to sign it.

If HMRC ever questions the employment statuses of any of your subbies, we’ll handle their questions on your behalf.

And the cost? Less than you might think (and much less than a fine from HMRC). There’s a one-off fee for us to draw up your contracts and then a recurring monthly fee of between £3-£5 per subcontractor per month (depending on your risk factor). That’s it – a few quid a month for complete peace of mind.

So what are you waiting for? Book a call to get started.

You might not even need our help!

But if you use labour-only subcontractors long-term and want to continue doing so, let’s have a chat. If you are at risk, we’ll take that risk off your hands.

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