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Definition of Sub Contractors

The following information is intended to explain the different types of sub contractors and how they are categorised by insurance companies for the purpose of determining whether Employers Liability Insurance is required.

Bona Fide Sub Contractors

Bona-fide sub-contractors are generally deemed to be contractors who work without direction from the Insured, hold their own insurance and usually provide their own materials and tools.

As long as they are not working under the direction of the Insured, have their own legal liabilities and insurance for themselves, there is no need to include them in the count of employees.

Most insurance companies would usually exclude losses occurring. This is to be due to any work undertaken for your business by bona fide subcontractors unless you take all reasonable steps to ensure that they have and maintain in force public liability insurance with a limit of indemnity of not less than that under your policy. They will not make any payment for any claim or loss where you fail to demonstrate to their satisfaction that you have complied with this requirement.

Labour Only Sub Contractors

Labour only sub-contractors should be treated as Employees. Generally they work under the direction of the Insured and do not provide their own material or tools (with the exception of small hand tools).

Determining BFSC or LOSC status

Whilst it is difficult to provide an accurate definition, it is important to try and correctly determine the status of sub-contractors.

As a general guide as to whether a worker is a LOSC or BFSC;

If the answer is ‘Yes’ to all or most of the following questions, then the worker is probably a LOSC and would need to be covered for employers liability insurance.

1. Are they paid by the hour, week, or month?
2. Can they receive overtime pay or bonus payment?
3. Do they only supply their own small hand tools?
4. Do they always have to do the work themselves?
5. Can the principal contractor tell them at any time what to do, where to carry out the work or when and how to do it?
6. Can they work a set amount of hours?
7. Can the principal contractor move them from task to task?

If the answer is ‘Yes’ to all or most of the following questions, then the worker is probably a BFSC:

1. Do they agree to do a job for a fixed price regardless of how long the job may take?
2. Do they have a contract of service as opposed to a contract of employment?
3. Within an overall deadline, are they able to decide what work to do, how and when to do the work and where to provide the services?
4. Do they regularly work for a number of different people other than the principal?
5. Do they have to correct unsatisfactory work in their own time and at their own expense?
6. Do they hold their own public liability insurance in their own name?
7. Do they pay the cost of all materials or supplies required for the work without being reimbursed? (excluding minor items and consumables).
8. Can they hire someone to do the work or engage helpers at their own expense?
9. Do they risk their own money e.g. if they bid for a job and the bid is too low, do they have to bear the additional cost themselves?
10. Do they provide or hire the main items of equipment they need to do their job, not just the small tools that many employees provide for themselves?

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