Ian Lawley, Technical Director at Ascend Broking highlights some areas that need consideration when employing subcontractors and the potential exposure to your insurance arrangements.
Many clients use subcontractors in the course of their business. This is quite normal of course and the client will expect to be insured for their use. But do they know the potential pit falls?
Subcontractors fall into two classes. What are they and how do you insure?
Labour only subcontractors are individuals who are to all intents and purposes temporary employees but not paid via your payroll. Tax and insurance treatment may differ but the main qualifier in the insurance world is that they work under your day to day control – where and when you direct and without the right to subcontract their work or provide a substitute for their labour. They may or may not provide their own tools and they may or may not hold their own Public Liability insurance.
Related Article – 5 reasons why you might need to review your public liability insurance
You are responsible for their welfare and their actions while they are working for you and you must insure as if they were employees.
You will need to advise your insurer of payments to labour only sub-contractors or, on headcount based policies, the number of contractors involved.
Watch out for:
Business description –
• your policy business description must allow for the inclusion of their activities. E.g. if your policy says Plastering you can’t employ a labour only subcontractor to do electrical work and expect your insurance to respond.
• If your policy is headcount based with an optional extension for temporary workers be careful – regardless of your policy business description the extension may exclude temporary employees (and their actions) when employed for some types of work. Even if you are insured for that work using employees on your payroll any claim you may make could be effected.
Bona-fide subcontractors are all others contracted to perform on your behalf work which you have yourself contracted to perform.
You will need to advise your insurer of payments to subcontractors
Related Article – 7 Reasons why you should embrace Professional Indemnity Insurance
Watch out for:
Policy conditions in relation to use of bona-fide subcontractors. These will probably include:
• A requirement to discover and record their insurance details to ensure they are insured for the time they work for you and for the type of work done
• A requirement that they insure for at least the same Public Liability limit as you do.
Remember, these conditions are standard for all buyers of that policy with your insurer and your broker may be able to negotiate changes in your own case.
We have a detailed paper available on this subject. To find out more contact:
Ascend Broking Group