We often hear ‘My groundsman is a bona-fide sub-contractor, so I don’t need Employers’ Liability Insurance’. These days everybody should know that it is extremely unlikely that a groundsman or even a climber is a bona-fide sub-contractor.
Note the caveat – ‘extremely unlikely’. The reason for this cautionary note is the original law and guidance relating to Employers’ Liability Insurance and ‘labour-only sub-contractors’ is somewhat dated. Additionally, the labour market has evolved, with the gig economy and various court rulings all making it harder to give clear answers. This has all added to the confusion about whether somebody is a bona-fide sub-contractor or labour-only sub-contractor (often know as a subbie).
It is important to make it clear that there is NO cast iron criteria that puts somebody into a particular category. This article is meant as a discussion piece, NOT legal advice. You must take advice from an expert lawyer, and I have no doubt that even this will be littered with various caveats. Furthermore, the supreme court has made rulings about Uber drivers and Pimlico Plumbers, which have moved thousands of self-employed contractors to ‘worker’ status with paid holidays and pensions. This has further shifted the definition of what is a sub-contractor is.
What is a bona-fide sub-contractor then?
Well, it’s difficult to be exact. It is easier to give a specific example of when somebody ‘might’ be a bona-fide sub-contractor:
Let’s say you get a groundworks contractor in to clear some earth in a field. They have their own very expensive plant, a JCB which you do not know how to use. They have quoted you a rate for the job and not an hourly or daily rate. They are working for profit and reward. Your only involvement is to unlock the gate to the field. They have their own safety procedures, insurance, work under their own steam and without your supervision or input. They won’t be working under your instruction as they are very much the expert in this area. In this example, it is likely the contractor will be deemed to be a ‘bona-fide sub-contractor’.
Importantly, whilst having their own insurance is one of the requirements of a bona-fide sub-contractor, having this cover does NOT alone make a contractor bona-fide. Many people wrongly try to cling on to this as a reason to avoid having Employers’ Liability Insurance. We too often hear the incorrect assumption, ‘I don’t need Employers’ Liability Insurance as they have got their own insurance’.
What is a labour-only sub-contractor?
Firstly, in the eyes of insurance law, they are deemed to be an employee. In practice, again it is difficult to give an exact definition, but here’s an example to help:
You hire a self-employed groundsman or climber to assist you and pay him a day rate – effectively wages as if he was an employee. You tell him what time to start and the way you are planning to tackle the job. You are instructing them, just by saying ‘start at 8am’ ‘lunch at 12pm’ etc. Clearly you are in charge and as such you are likely to be responsible for their health and safety. They will ‘probably’ be deemed to be a labour-only sub-contractor. You are very unlikely to have a bona-fide sub-contractor relationship with any climber or groundsman. If you use labour-only sub-contractors, then with very few exceptions the law requires you to have Employers’ Liability Insurance.
Another important point is that if a subbie uses their own equipment, they are probably still a labour-only sub-contractor. Court judgements have clearly supported this – look at the Uber rulings and they use their own cars.
You need to be aware that these are examples only and you MUST take legal advice. I discussed this once with an insurance lawyer and I asked if there was a cast iron way of telling if somebody was indeed a bona-fide sub-contractor or labour-only subbie. ‘Yes’, he said. ‘Wait until they injure themselves and see if they can sue you!’
As mentioned, the Supreme Court has made a series of rulings which have moved contractors’ status, so if you took legal advice five years ago it may well be out of date. From a cautionary position, the best way to approach this is if you are in any doubt, assume contractors are ‘labour-only’. Yes, this means that your business insurance may cost more, but is likely to be substantially less than the legal fees of getting a cast iron legal opinion. Importantly, along with having the correct insurance, sub-contractors’ status can have a huge impact on Health & Safety procedures and responsibilities. This is an equally important issue, and I will refer you to the HSE guidance as it’s beyond the scope of this piece.