You might have heard a rumour that if you contract your subbies through payroll or umbrella companies, they’ll take care of the insurance.
It’s utter bollocks.
Even if they vet all the subbies thoroughly, accidents happen, mistakes happen, and insurance claims happen. Why would they want to take on that risk – it’s just extra cost and extra work.
Of course, these rumours about insurance cover suit the umbrella companies. It encourages those contractors who are already nervous about working with their subbies long-term to sign up.
But those poor contractors end up leaving themselves more open to risk than they were in the first place.
So how do you protect yourself?
Bona fide subcontractors (BFSC)
Bona fide subcontractors are completely separate from your business. They usually bring their own tools and materials, work without supervision and invoice for a fixed project fee.
You are contracting them as one business to another and are paying them for their specific expertise.
As a completely separate entity, they should have their own business insurance, and you’ll need to make sure they do. Most insurers will require you to check that bona fide subcontractors have public liability cover equal to your own.
You might also want to advise your insurance provider that you are using bona fide subcontractors to ensure this doesn’t affect your policy in any way. They might add contingency cover to your policy as an extra precaution.
Labour-only subcontractors (LOSC)
Labour-only subbies are a little different. While they are still a separate business, there is usually more direction in how they work. They might also use your tools and materials and are often paid hourly or daily rather than at fixed rates.
Once subbies are working under your direction, they become your responsibility from a public and employer liability perspective. In other words, if you use labour-only subbies, you will need employer liability insurance.
Don’t panic – this doesn’t make them employees in the eyes of HMRC (certainly not on its own). It’s just the way insurance works.
When it comes to public liability and professional indemnity insurance, there is no legal requirement for sole traders to have insurance (although many choose to get cover anyway).
As the main contractor, your public liability insurance should cover your subbies (unless they have their own insurance).
Even if they do have their own insurance, you might find it easier to have a master policy rather than having to chase all your subbies for certificates and keep track of their renewal dates.
Don’t leave yourself at risk by relying on subbies to manage their insurance or assuming your payroll company covers them.
The claim will be where the fault lies, and from a client perspective, the fault almost always lies with the main contractor.
We’re on a mission to share the truth behind all the myths, misconceptions and outright lies that seem to be rife in the construction industry.
Rumours such as the one about payroll companies insuring your subbies can cause all kinds of issues for contractors.
The only people benefiting from these rumours are the payroll companies, and we’re tired of seeing construction firms getting caught out.
It’s not that we don’t think payroll companies offer a valuable service – they do.
We just don’t like it when they use scare tactics and sneaky strategies to make construction firms think umbrella firms are the only option for working with subbies long term.
You can work with subbies for as long as you want and however you want without upsetting HMRC or using a payroll company.
And we can help you do it. We create bespoke contractor-subcontractor agreements outlining exactly how you work with subbies and why you work that way. So if HMRC does ever question the relationship, there will be no misinterpretations about their employment status.
As for your insurance? Well, we leave that up to you to deal with.
But as a client, you do get access to our fancy software, which can be used as your very own subcontractor management tool. You can upload insurance certificates and any other relevant documents, so you can always access them when you need them.
Want to know more?