Do I need employers’ liability insurance for sub-contractors?

If you work in construction and run your own business, there are certain types of insurance you must have. This includes employers’ liability insurance to cover anyone you employ.

Who must have employers’ liability insurance and why?

You need employers’ liability insurance if you employ someone, and you operate as a limited company, partnership or are self-employed.

It is a legal requirement to have it, if you employ anyone. You can be fined for every day that you don’t have insurance.

What is employers’ liability insurance?

It protects you and your business in the event a current or former employee successfully sues you for an injury or illness they suffered as a result of working for you.

Who counts as an employee?

An ‘employee’ is anyone you employ full- or part-time, including:

• temporary staff
• apprentices
• volunteers
• people taking part in work experience or training schemes.

Are sub-contractors counted as employees?

In some circumstances, your sub-contractors may be considered ‘employees’. If someone is not being paid by you via PAYE, it does not necessarily mean they are self-employed.

As a rule of thumb, whether someone is considered an ‘employee’ will often depend on whether they can be described as a ‘labour-only’ or ‘bona-fide’ sub-contractor.

What is a ‘labour-only’ sub-contractor?

Labour-only sub-contractors normally work as specified by you. They will use your tools and materials. As their employer, you will tell them what to do, where to do it and when. You will also supervise their work.

This type of sub-contractor is legally considered to be an ‘employee’. You will need employers’ liability insurance for them.

What is a ‘bona-fide’ sub-contractor?

Bona-fide sub-contractors use their own tools and materials. They decide what to do, when and where.

Bona-fide sub-contractors will often be on a fixed-price contract (i.e. they get paid the same regardless of what amount of time or materials are needed to finish the job). They may also work for other contractors or clients.

This type of sub-contractor is not legally considered to be your employee, so you do not need employers’ liability insurance for them.

If you’re not sure, check with your insurance company or accountant. You should always make sure that any bona-fide sub-contractors have their own liability insurance, with a level appropriate for the value of your projects.