Subcontractor Agreement Template
If you’ve been working with the same subbies for a while (or intend to), then you might be wondering whether it’s time to put a proper contract in place.
Agreements don’t necessarily have to be written down to be legally binding, but having a formal written agreement offers greater protection for you and your business.
It will help support your case should there be any legal disputes or if HMRC ever questions whether your subbies are genuinely self-employed.
Are free subcontractor agreement templates any good?
The problem with generic contracts is they are designed to be generic. This means the terms won’t always be relevant to your business.
Rather than take a ready-made contract and stick your company name on it, use a template that can be tailored to your business. And double check it contains everything it needs to.
Our contract template comes with a helpful guide that talks you through the most important elements. You can access it here. And because we’re really nice, here’s a quick summary of what your agreement needs to cover…
What needs to be in a subcontractor agreement?
To keep things as simple as possible, we’ve created what we refer to as the three-factor formula.
1. Commercial Aspects
The ‘Commercial Aspects’ part of our formula looks at the day-to-day relationship you have with the subcontractors. How do you work with your subbies?
This is where you’d cover things such as subbies using your company vehicles or wearing your uniform. You need to provide legitimate business reasons for why you work this way (don’t worry our guide explains how).
2. Business Factors
‘Business Factors’ is where our formula will demonstrate your subcontractors are genuinely self-employed – that they are a business in their own right.
One way you can do that is to demonstrate that subcontractors can make a loss as well as a profit, by including terms such as: “The Contractor (you) may impose a requirement on the Subcontractor to rectify any defective work the Contractor reasonably determines has been caused by the Subcontractor, at his own cost or in his own time.”
The time they would spend rectifying sub-standard work is time that could be spent earning money, therefore they are making a loss.
3. The ‘Tests’
The ‘Tests’ cover the applicable law around self-employment – the things the courts will look at to determine employment status. This part of the contract demonstrates how you never fail those tests.
The three tests we’re talking about are personal service, mutuality of obligation, and control. We’ve covered each of them in detail in the following articles
- Personal service: What is the right to substitution clause (and do you need it)?
- Mutuality of Obligation (MOO): a quick guide for construction firms
- Supervision, direction, and control: what construction firms need to know
Bringing your entire agreement together
As well as the three factors, there are some more general points you’ll need to cover, such as the effective date and payment terms.
Although a CIS deduction will be made from the subcontractor, it’s important to state that the subcontractor is responsible for their own Tax and National Insurance affairs. You also need to clarify that subcontractors are not due any holiday entitlement, sick pay, holiday pay or any other payments that could be expected of an employee.
It also needs to be specifically stated that your subcontractors are providing their ‘services’ on a self-employed basis and are in business in their own right. We recommend doing this early on in the agreement.
The final part is getting your subcontractor agreements signed by your subcontractors. This shows that both parties agree to the terms and both parties acknowledge their responsibilities under the contract. The subcontractor agrees to deliver a service and the contractor agrees to pay for that service.
Industries our contractor-subcontractor agreements can be used for
Our contractor-subcontractor contract template can be used for any main contractor engaging independent contractors within the construction industry, including:
Plumbing
Our subcontractor agreement template can be used if you are hiring subcontractors for domestic or commercial plumbing work.
Electrical engineering
If you’re an electrical contracting company and you use subbies on a regular basis, you can use our contractor to subcontractor agreement template.
Bricklaying
If you’re the main contractor on a construction project and you are bringing in bricklayers, our template will help you ensure that everyone is clear on the terms.
Construction
You can use our agreement template if you’re using labour-only subbies for the following services: bricklaying, scaffolding, plumbing or electrical, groundwork, roofing, landscaping or any other element of a construction project.
Landscaping
Want to bring in other parties to work on landscaping projects? Use our agreement template to make the relationship and the terms clear.
HVAC
If the agreement you have with a subcontractor warrants a formal contract, our subcontractor agreement template covers all the basics for Heating, ventilation, and air conditioning contractors.
FAQs
Still not convinced it’s as easy as it sounds? We get it. You’ve probably heard all kinds of conflicting information. So, we’ve put together these frequently asked questions to help you understand a bit more about how we do what we do.
How does a subcontractor agreement prove employment status?
When you engage the services of an independent contractor on an ad-hoc basis, it’s pretty clear they are self-employed. But when you use the same labour-only subbies long-term, things can get a bit murky.
Even if both parties agree the relationship is one of main contractor and sub-contractor, HMRC might not see it that way. And if they reclassify them as employees, it’s the main contractor (that’s you) that gets stuck with the bill.
As the main contractor, you are solely responsible for determining employment status. That doesn’t mean that claiming your subbies are self-employed will make it true – it has to be true. And to prove it’s true, you’ll need to demonstrate that the relationship is genuinely one of contractor and subcontractor, not employer and employee.
That’s where your contracts come in. By outlining exactly how you work with subbies and why you work that way, you leave nothing open to misinterpretation.
How can a formal agreement protect you from legal disputes?
You might think you have a fantastic relationship with your subbies now, but what happens if work dries up and you have to end your agreement immediately?
You might argue that the agreement was one of contractor and independent contractor but if the other party claims they thought they were employed, they could have a case for unfair dismissal.
Or what happens if the subcontractor’s work isn’t up to scratch and you want to withhold final payment? If there wasn’t prior written consent for you to do that, you could end up in an ongoing battle.
Disputes happen for all kinds of reasons – arguments over expenses, subcontractor’s employees not doing the job right, a personal injury – the list is endless.
And dispute resolution can be tricky when you’re working on a he-said-she-said-they-said basis. One party claims one thing and the other says something completely different. It’s a bit harder for a subcontractor to claim they misunderstood the terms if they’ve signed a contract saying otherwise.
A contract might not be able to cover every eventuality, but it can cover the basics. If both parties agree the terms, then both parties should be clear on what the expectations are and who is liable for what. And it gives you the right to automatically terminate the agreement if the terms aren’t met.
Want a watertight contractor-subcontractor agreement?
If you don’t fancy putting together your own contractor-subcontractor agreement or you don’t feel confident, why not let us take care of it for you? It’s what we specialise in.
We create watertight contracts for construction firms. And for complete peace of mind, all our contracts come with our insurance-backed guarantee. So, if HMRC ever did try to reclassify your subbies as employees, we’d cover the legal fees and other related costs.
Plus, we also get all your subbies to sign the agreements electronically, so you don’t have to mess around printing out loads of copies and driving around to get them signed.
Find out more about our services or get in touch to get your contractor-subcontractor agreements in place.