Who are Labour-only Subcontractors?

The defining characteristics of labour-only subcontractors are as follows:

• They work under your supervision and direction.
• They use your materials, kit, equipment and tools.
• They must comply with your health and safety policies.
• They do not have a guarantee for work done.
• They may leave part way through the job.

Essentially, labour-only subcontractors are additional employees that you hire to assist with a building project that could be too large or complex or if you just need additional day labour to assist your full-time staff.

As these subcontractors are employed for the duration of the building project, you are required to treat them the same as your full-time staff and classify them as employees.

Also, your firm must cover each labour-only subcontractor under your employers’ liability and public liability insurance which the cost is higher as you pay 100% of the Public Liability rate and 100% of the Employers Liability rate.

Who are Bona-fide Subcontractors?

The defining characteristics of bona-fide subcontractors are as follows:

• They work under their own supervision and direction.
• They provide their own materials, kit, equipment and tools.
• They are responsible for their own health and safety.
• They may have additional employees.
• They provide their own method statement and are responsible for their own guarantees and maintenance.

Understanding the difference between labour-only and bona-fide subcontractors can protect your construction firm from costly and damaging risks.

Essentially, bona-fide subcontractors are hired to complete a specific job—such as plumbing or electrical work—on a building project that your full-time staff is not capable of completing on its own.

As your firm would be hiring them on for a specific job, you would pay them as if it were a normal separate job, typically via invoice.

Also, if they are working independently of your firm, bona-fide subcontractors should have their own liability insurance.

Your firm should look to take contingency Public Liability to cover where a bona-fide subcontractors coverage fails, and you are held liable for the damage. As a contingency cover, the cost is so much lower as insurers tend to only charge just 25% of the cost of the Public Liability section only.

Determining Labour-only v Bona-fide Status

If you can answer yes to all or most of the following questions, the worker is probably labour-only:

1. Are they paid hourly, weekly or monthly?
2. Can they receive overtime or bonus pay?
3. Do they work a fixed number of hours?
4. Can the principal contractor direct them how, when and where to carry out their work?
5. Can the principal contractor direct them from task to task?

If you can answer yes to all or most of the following questions, the worker is probably bona-fide subcontractor:

1. Are they paid on a fixed-price contract?
2. Do they decide their own schedule?
3. Do they decide what, how, when and where to do their work?
4. Are they responsible for correcting unsatisfactory work?
5. Do they work without supervision?

How Knowing the Difference Helps You

If your business needs to take on additional help in order to complete a building project, you need to be confident that you understand the differences between Labour Only Subcontractors and Bona-fide subcontractors.

This knowledge can help ensure that your firm avoids costly and damaging claims

Generally, any losses arising would be interruption to the policyholder’s business rather than material damage. What cover may there be under a Business Interruption section of a policy for such losses? There are really only two areas where some cover may be available, both being under Business Interruption cover non damage extensions.

Notifiable Diseases

This extension is often headed Murder, Suicide and Disease. The majority refer to cover for “interruption of or interference to the business during the period of insurance following…” . They set out a list of specific notifiable diseases that are covered. Covid-19 is not normally among these, which is not surprising as it was unknown until recently. Therefore, there would be no cover under such wordings.

However, some covers are written on a non specified basis, typically covering “loss resulting from interruption of or interference with the business during the indemnity period following….any human infectious or contagious disease which is notifiable to the local authority manifested by any person whilst on the Premises…”. Under this form of wording, as Covid-19 (Coronavirus) is now a notifiable disease BI losses arising as a direct result of the disease affecting the business would be covered.

Denial of Access

If we approach a worst case scenario, it is probable that areas will be quarantined with travel being either severely restricted or cut off completely. This would have a significant impact on most businesses. Many policies contain a Denial of Access extension to the Business Interruption section. The majority typically require the denial of access to be as a result of “insured damage in the vicinity of the insured premises which prevents or hinders access to the insured premises”. As there would be no physical damage, there would be no cover under such an extension.

Some policies will contain a non damage Denial of Access clause which typically covers losses arising from “an incident during the period of insurance which results in a denial of access or hinderance in access to the insured premises imposed by any civil or statutory authority or by order of the government or any public authority”. There is usually a geographical limit such as the incident having to be within I mile of the insured premises, plus often a time trigger such as the denial must be for more than 24 hours.

Under such a non damage Denial of Access extension, then losses arising to the business as a direct result of such denial of access due to Covid-19 (Coronavirus) would be covered by the policy.

 

In summary, each policy will need to be reviewed to establish if they contain a non-specific Notifiable Disease extension and/or a non damage Denial of Access extension.

Source – Angus Tucker – Lorega Solutions

We’ve compiled a bullet list of the most important services you should be receiving, alongside the pitfalls if you’re not!

 

A Specialist Understanding of your Business

Does your broker have extensive experience in your sector, does their website show they specialise in your trade? Failure to fully understand your business hinders the ability to conduct a detailed fact find consequently resulting in key elements of your risk being neglected or omitted. Subsequently, inappropriate and insufficient cover could be arranged which ultimately provides the potential for claims to be refused.

 

Guidance in Setting Sums Insured

Did you know that the basis of insurance claims settlement differs drastically depending on the section of the policy? For example, calculating the sums insured for building’s or plant/machinery is significantly different to stock. Getting this wrong could result in a reduced claim settlement or even a claim being refused in totality.

 

A Detailed Explanation of Policy Conditions

When businesses compare quotes this is commonly done on the sums insured and pricing. However, the devil is in the detail and the crucial aspects lie within the policy conditions located on your schedule and within the policy wording. If your broker doesn’t discuss these with you they are potentially leaving you exposed to rejected claims due to non-compliance.

 

Health, Safety and Legislative Guidance

Do you understand when a health and safety policy becomes law, the importance of having signed acceptance and understanding of risk assessments by staff or what ‘statutory inspection’ is? Businesses are subject to significant amounts of legislation and having quality broker support on such matters can be invaluable.

 

Claims Guidance

Understanding your brokers claims service is essential so you are aware of what support is available should the worst occur. Having an advisor liaise between you and the insurer frequently prevents claims being rejected and improves the speed of settlement. Prudent brokers arrange polices which provide specialist Loss Adjuster support to assist with complex claims on your behalf and this service is worth careful consideration.