Insurance for tradesmen using sub-contractors

In the construction and trade industries, scaling up often means bringing in extra hands. Whether you have landed a larger contract than usual or need a specialist skill for a week, you will likely turn to sub-contractors. However, from an insurance perspective, not all sub-contractors are created equal. Failing to distinguish between the different types of help you hire is one of the most common reasons UK tradesmen find their claims rejected and their businesses exposed.

The fundamental difference between your staff and sub-contractors

When you take out a public or employers' liability policy, the insurer is calculated based on risk. A significant part of that risk is determined by who is doing the work under your banner. In the eyes of an insurer—and often the HMRC—there is a world of difference between a "Labour Only" sub-contractor (LOSC) and a "Bona Fide" sub-contractor (BFSC). This distinction isn't just bureaucratic jargon; it dictates who is legally responsible for accidents, injuries, and faulty workmanship.

At Premier Insurance, we see many tradesmen assume that because someone isn't on their PAYE payroll, they don't need to be covered under their own policy. This is a dangerous misconception. If you control their movements, provide their tools, or direct their daily tasks, the law may view them as employees, regardless of how they are paid. If you get this classification wrong, you could be operating without valid Employers' Liability insurance, which is a criminal offence under the Employers' Liability (Compulsory Insurance) Act 1969.

Defining Labour-Only Sub-Contractors (LOSC)

Labour-only sub-contractors are, for all intents and purposes, employees for the duration of the contract. They typically work under your direct supervision, use your tools and materials, and are paid an hourly, daily, or weekly rate. They do not generally provide their own professional indemnity or public liability cover because they are working under your direction.

Because they are treated as employees, you must include them in your Employers' Liability (EL) figures. Under UK law, EL insurance is compulsory if you have employees, and this includes labour-only subs. If a labour-only carpenter falls from a ladder you provided, they have the right to claim against your insurance. If you haven't declared them to your broker, your insurer may refuse to pay the claim, leaving you personally liable for legal fees and compensation.

Typical costs for adding labour-only subs

Because these individuals are viewed as high-risk extensions of your own hands, adding them to a policy increases the premium. For a standard tradesman policy, adding one labour-only sub-contractor might increase your annual premium by approximately £150 to £250, depending on the trade. In monthly terms, you might see your payment rise by about £15.00 to £22.00 per month.

Defining Bona Fide Sub-Contractors (BFSC)

Bona fide sub-contractors are independent businesses in their own right. They generally work under their own supervision, provide their own heavy tools and materials, and—most importantly—hold their own Public Liability insurance. Usually, you would pay them a fixed price for a specific "turnkey" job rather than an hourly rate.

From an insurance standpoint, BFSCs are lower risk for you because their own insurance should respond if they cause damage or injury. However, you must still declare your use of BFSCs to your insurer. Most policies will include a "Bona Fide Sub-Contractor Condition," which tasks you with checking that their insurance is valid and has a limit of indemnity at least equal to your own (usually £2 million or £5 million).

If you hire a bona fide plumber to install a boiler and they cause a flood, your insurer will look to their policy first. However, if their insurance has lapsed and you failed to check it, the claim could bounce back to you. If you haven't declared the use of BFSCs on your own schedule, your insurer might walk away from the claim entirely.

Why misclassification voids your cover

Insurance is a contract of "utmost good faith." When you give details to a broker, the insurer uses that data to "rate" the risk. If you tell an insurer you are a sole trader with no staff, but you actually have three labour-only lads on site every day, you have misrepresented the risk. This is known as "non-disclosure" or "misrepresentation" under the Insurance Act 2015.

In the event of a major claim—perhaps a fire that causes £500,000 in damage—the insurer will appoint a loss adjuster. One of the first things they will do is check your books and interview people on site. If they find you have treated labour-only subs as bona fide subs to save on premiums, they can void the policy from the start. This leaves you with a massive debt and a "cancelled insurance" marker on your record, making it incredibly difficult to get cover in the future.

The HMRC crossover: IR35 and insurance

While insurance and tax are separate entities, they often look at the same markers. HMRC’s "Check Employment Status for Tax" (CEST) tool looks at "substitution" (can the worker send someone else?), "control" (who decides how the work is done?), and "financial risk" (does the worker lose money if the job goes over budget?).

If HMRC decides a sub-contractor is "inside IR35," it is a very strong indicator that your insurer will view them as a Labour-Only Sub-Contractor. As brokers regulated by the Financial Conduct Authority (FCA), we always advise our clients to ensure their insurance definitions align with their practical working relationships. If you aren't sure, it is always safer to classify them as labour-only and pay the slightly higher premium than to risk a total loss of cover.

How to correctly declare sub-contractors to your broker

When you speak to a broker at Premier Insurance, we will ask for your estimated annual turnover and your total wage roll. To get an accurate quote, you should have the following figures ready:

• Direct PAYE Wages: Total gross pay for staff on your permanent payroll.
• Labour-Only Payments: The total amount paid to individuals who work under your control using your tools.
• Bona Fide Sub-Contractor Turnover: The total value of contracts awarded to independent firms who carry their own insurance.

It is worth noting that many insurers allow for a "split" in turnover. For example, if you are a builder doing a £100,000 project and you pay a bona fide electrical firm £10,000 to do the wiring, you should declare that 10% of your turnover is paid to BFSCs. This often results in a lower premium than if you were doing 100% of the work yourself, as the insurer sees that the specialist risk is being handled by another insured party.

Checking your sub-contractors' paperwork

If you use bona fide sub-contractors, your policy will almost certainly contain a clause requiring you to verify their insurance annually. Simply asking "Are you insured?" is not enough. You should request a "To Whom It May Concern" letter or a Schedule of Insurance from them. Check the expiry date and ensure their Public Liability limit matches or exceeds yours. Keep a digital folder with these certificates; if a claim arises three years later, you will need to prove that they were insured at the time of the incident.

Commonly asked questions

Do I need Employers' Liability if I only use bona fide sub-contractors?

Technically, if they are truly independent, you may not have a legal requirement for EL. However, the line is so thin that most BIBA-affiliated brokers will strongly recommend a minimum level of EL cover. If a sub-contractor is injured and claims your site was unsafe, the EL portion of your policy provides the legal defence you need.

What happens if I hire a sub-contractor for just one day?

They still need to be classified. If they are using your tools and following your lead, they are a labour-only sub-contractor for that day. Most insurers allow for a certain amount of "man-days" for temporary staff, but you must inform your broker so they can ensure the policy wording accommodates temporary help.

Does my insurance cover the sub-contractor's tools?

Usually, no. If a sub-contractor brings their own tools to site, they are responsible for insuring them. Your "Tools in Transit" or "Contract Works" cover typically only applies to items owned by your business or items for which you are legally responsible under a hire agreement.

Navigating the nuances of sub-contractor classification can be complex, but it is vital for the survival of your business. As an independent broker with experience dating back to 1983, Premier Insurance has access to over 200 insurers. We can help you compare policies and ensure that your definitions of labour-only and bona fide staff are accurate, protecting you from the risk of voided cover and ensuring you are fully compliant with UK regulations.

Related Tradesmen insurance guides

• How much does tradesman insurance cost in the UK?
• Public liability insurance for tradesmen: a clear UK guide
• Tools insurance for tradesmen UK
• Self-employed tradesman insurance essentials
• CSCS card and insurance: what site contractors need

Speak to a UK insurance broker

Premier Insurance has been arranging UK tradesmen insurance since 1983. We are FCA regulated, BIBA members, and place cover with 200+ insurers including Lloyd's of London. Call 020 8908 2426, WhatsApp 07954 331362, or email hello@premier-insurance.co.uk. See our Tradesmen Insurance page for full cover details.