Labour-Only vs Bona-Fide Subcontractors

Discover the key disparities between labour-only vs bona-fide subcontractors. Understanding these differences is essential for risk management and compliance in the industry.

Key TakeawaysDescription
Labour-only subcontractors work under your supervision, using your materials.They lack work guarantees and may leave mid-project. Employers must treat them as employees and provide liability insurance.
Bona-fide subcontractors work independently, providing materials and direction.They handle their own safety and may employ others. Firms hiring them pay via invoice and may need contingency liability coverage.
Understanding the distinction prevents costly risks for construction firms.Misclassification can lead to legal and financial liabilities. Recognising each type's characteristics is crucial for effective risk management.
Determining status involves assessing payment methods and work autonomy.Labour-only workers typically have fixed pay and are directed by the principal contractor. Bona-fide subcontractors operate independently on fixed contracts.
Knowing the difference ensures confident hiring decisions and risk avoidance.By accurately categorizing subcontractors, firms can mitigate legal claims and maintain project efficiency and financial stability.

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