Subcontractors - The Difference between LOSC and BFSC

The insurance definition of BFSC & LOSC is different to the HMRC definition. Ensure you have the correct procedures in place to guarantee your insurance policies will respond in your time of need.

Whilst it is difficult to provide an accurate definition (as the law does not provide one), it is important to try to correctly determine the status of sub-contractors to ensure that the correct insurance cover is in place. If a sub-contractor is a bona-fide subcontractor (BFSC), Employers’ Liability Insurance is not required, but if a sub-contractor is a labour only subcontractor (LOSC), Employers Liability is required.

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 and may leave part way through.

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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, carry out risk assessments and are responsible for their own guarantees and maintenance.

If your policy provides cover for bona fide sub-contractors on a contingent basis, it is up to you to ensure that they carry satisfactory and adequate insurances and that their policy will include a business description to cover the work they are doing for you. Their policies must have an adequate limit of indemnity and contain an indemnity to principals’ clause.

The pitfalls of using subcontractors

You must keep a record to show that the insurance of each subcontractor has been checked and a diary system to identify when they are due for renewal. If you have any questions regarding this or are unsure whether your policy covers this, please get in touch on 01245 449060.

You can read our latest document here. This document outlines key differences between LOSC and BFSC as well as the key questions to ask in order to determine if you are covered for your subcontractors.

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