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 Takeaways | Description |
| 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:
- Are they paid hourly, weekly or monthly?
- Can they receive overtime or bonus pay?
- Do they work a fixed number of hours?
- Can the principal contractor direct them how, when and where to carry out their work?
- 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:
- Are they paid on a fixed-price contract?
- Do they decide their own schedule?
- Do they decide what, how, when and where to do their work?
- Are they responsible for correcting unsatisfactory work?
- 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
