Do you need a formal contract for services between you and your subcontractors? Or should you just keep the arrangement informal?
Is there any point putting official paperwork in place when you’ve already been working with your subbies for a while with no issues? Or can you just carry on as you are?
Well, that’s up to you. Technically, you don’t “need” a contract for services. You are not legally required to have a written agreement. But that doesn’t mean you shouldn’t bother.
Just because you haven’t had any issues so far doesn’t mean you won’t have problems in the future. And if you do run into problems, a formal contract could save you a lot of hassle.
What is a subcontractor contractual agreement?
A subcontractor agreement or contract is an agreement between you and your subcontractors outlining the terms of your working relationship.
Having a formal agreement in place makes it clear what the expectations are and who will be held responsible if things go wrong.
Your agreement can be verbal or written, but there are additional advantages to having a written agreement.
The most obvious advantages is that a written and signed contract provides physical evidence that both parties agreed on the terms. It’s harder to prove what was agreed in a verbal contract if one party decides to claim it didn’t exist.
If you work with subcontractors long-term, it’s a good idea to get a signed contract for services in place.
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What should be in a subcontractor agreement?
Your agreement should outline the working relationship you have with your subcontractors.
This should match up with what actually happens and can include:
Service requirements and responsibilities
Is the subcontractor being contracted for a single construction project or several client projects? What are the terms of service and scope of work? Include any relevant due dates and outline the contractor’s main responsibilities.
Payment terms
How and when will your subcontractors be paid? Is the subcontractor working on a fixed price per job or an hourly rate? How often will they be paid?
Right to substitution
A right-to-substitution clause allows your subcontractor to send other contractors with the same level of expertise to complete work in their place.
Resolving disputes
What happens if your subcontractor’s work is not completed to the required standard? Is the subcontractor responsible for rectifying unsatisfactory work at their own expense? What are the timescales within which the subcontractor must complete any remedial works? How will disputes be resolved?
Terms and other factors specific to your business
You may have some terms that are specific to your construction business. For example, do you allow your subcontractors to use your equipment or vehicles? Do you require them to provide details of their liability insurance? Will you be supplying materials?
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Benefits of having a subcontractor contract in place
Hiring subcontractors isn’t without risk. You are relying on them to support your project, but as the main contractor, you will be responsible for delivering to client expectations. Having a contract between you and your subcontractors can protect you.
Protects your business
You may think you have a great relationship with your subbies right now, but you don’t know how they might react when work dries up unexpectedly. And it’s not unheard of for disgruntled subcontractors to go after contractors for unpaid holiday pay or unfair dismissal.
Having a contract protects you.
A subcontractor can’t say they thought they were an employee if they signed a contract that clearly states they aren’t.
And it’s not just disgruntled subbies you’re protecting yourself from – it’s unnecessary hassle and cost too. If your contract makes it clear subbies are responsible for rectifying any mistakes at their own cost, you aren’t leaving yourself out of pocket if they mess up.
Protects your subbies
Contracts don’t just protect your business – they protect your subcontractors too.
Being a self-employed subcontractor means being a business in your own right. And being a business owner comes with financial risk.
When you have a contract, your subbies have more clarity over what that risk looks like. Plus, they don’t need to worry about whether you’re going to screw them over because all the terms of the relationship are clearly documented.
A written contract might feel like an unnecessary formality, but it actually benefits everyone.
Employment status can’t be misinterpreted
One of the biggest concerns for construction firms using subbies long-term is that HMRC might open an enquiry into employment status.
If HMRC views your relationship as one of employer and employee rather than one of contractor and subcontractor, they may reclassify your subbies. If this happens the financial responsibility – such as paying back tax and NI and any fines or penalties – will fall to the main contractor.
While HMRC won’t always take a contract at face value, having one demonstrates that both parties view the relationship as one of contractor and subcontractor and can help prove your subbies are genuinely self-employed. And as long as it matches up with reality, HMRC should lose interest pretty quickly.
Establishes a positive working relationship between contractor and subbie
Contracts don’t just protect you from HMRC – they improve the relationship between you and your subbies by removing ambiguity.
Whose responsibility is it to supply materials, tools and PPE?
Can your subcontractors send a substitute in their place?
Will subbies have to rectify mistakes at their own cost?
Do you cover fuel expenses?
Are subbies expected to wear your branded uniform on-site?
Having written terms sets clear expectations which helps you establish a positive relationship with your subbies. If everything is documented, there will be no disagreements or misunderstandings.
What happens if a subcontractor does not have a contract?
Legally, there is no issue with not having a formal agreement in place. But if you want peace of mind, it’s worth putting one in place especially if you work with subcontractors long term.
If there is a dispute, you’ll find it easier to resolve if both you and the subcontractor have agreed terms in advance.
We cover this in more detail in our article: How to avoid contractual disputes with subcontractors.
Do subcontractors have to sign a contract?
By law, you don’t need a signed agreement to work with subbies long-term. However, as we’ve already highlighted, there are plenty of benefits to having one.
Ideally, you should get your subbies to sign the contract. However, when you work with HardHats we have mechanisms in place to protect you even if there is no physical signature on the contract. That said, getting contracts signed is the best option.
Putting subcontractor contracts in place is easier than you might think
HardHats specialises in creating bespoke subcontractor contracts for construction businesses. All you need to do is tell us how you work with your subbies, and we’ll do the rest.
We’ll create a comprehensive agreement, and then we’ll get your subbies to sign it electronically. A few minutes of your time for complete peace of mind.
Plus, we offer an insurance-backed guarantee on all our contracts, meaning if HMRC ever does open an enquiry into employment status, we’ll handle it on your behalf and pay any associated costs.
You can find out more about how it works here or chat with us on WhatsApp.
Frequently asked questions about subcontractor contracts
A contract of services is an employment contract between an employer and employee outlining the working conditions. Under employment law, employees have certain rights and entitlements such as sick pay, holiday pay, paternity or maternity pay and the right to national minimum wage.
A contract for services is an agreement between a contractor and a self-employed subcontractor. It outlines the terms of the relationship, and both the contractor’s and the subcontractor’s responsibilities. Self-employed subcontractors do not have the same employment rights as an employee would.
Yes. Any independent contractor is a business in their own right and is responsible for managing their own tax and national insurance payments.
It doesn’t matter whether your subbies operate as sole traders or limited companies, they do not have the same rights as employees. Having a subcontractor agreement in place can help you avoid enquiries into employment status.
No. Legal fees can be expensive, and you don’t need business lawyers to draw up contracts (although this is an option). You can create your own agreements – our book will teach you how. However, if you don’t have the time or expertise to do it yourself, we can take care of it.
We specialise in creating bespoke subcontractor contracts for construction companies. And our service comes with an insurance-backed guarantee.
There is nothing in the law that says you must have a contract if you hire subbies. However, if you do want to hire subbies long-term, it is recommended.
Absolutely – we teach you how in our free book. So if you want to uncover the secret to working with subcontractors long-term without using payroll companies or upsetting HMRC, get yourself a copy! Need help? Chat with us on WhatsApp.
If you are working with subbies via a payroll company, they will sit between you in the contractual chain so your contract is with the payroll company, not the subcontractor. However, the contracts used by payroll companies are designed to protect them, not you.