Should you hire labour-only subcontractors or bona-fide subcontractors?

What is subcontracting?

Subcontracting is a flexible way for your business to take on different projects and opportunities. For example, subcontractors can enable your business to:

• Commit to larger, one-off projects.
• Respond to an increased workload as your business grows.
• Bid for more varied contracts that might require specialist trades.

There are two types of sub-contractor: labour-only and bona-fide subcontractors.

In this post, we’ll look at the difference between the two, the pros and cons of each, and answer some of the commonly asked questions.

What is a labour-only subcontractor?

The definition of a labour-only subcontractor (LOSC) is what it says on the tin – labour only. The tradesperson works under your instruction, using your tools and materials. Labour-only subcontractors are usually paid by the hour, day, or week.

Do labour-only subcontractors need their own insurance?

Labour-only subcontractors will not normally need their own insurance. They are considered as employees for the purpose of your employers’ liability insurance.

What is a bona-fide subcontractor?

The meaning of a bona-fide subcontractor (BFSC) is a subcontractor who works under their own direction, using their own tools and materials.

They are usually brought in to complete a specialist job as part of a wider project. For example, if you’re in construction, you might subcontract the plumbing or electrical work in this way.

A bona-fide subcontractor will usually provide an initial quote for the job you’ve contracted them to do. This is then paid on completion, or in agreed instalments.

Are bona-fide subcontractors employees?

Bona-fide subcontractors are not employees of your organisation. They should have their own insurance.

Labour-only subcontractors v bona-fide subcontractors

There are a number of key differences between labour-only and bona-fide subcontractors, outlined below.

Payment terms

A BFSC will either be paid as a lump sum on completion of the work, staged payments when sections of the project are complete, or in agreed instalments.

In comparison, a LOSC is normally paid hourly, daily, or weekly.

Should there be a problem with the work carried out by a BFSC, it is their responsibility to fix it without you incurring any additional costs. However, there is no guarantee with the work completed by a LOSC.

NB. A subcontractor is expected to pay their own self-employment taxes and NI contributions. If it’s discovered they’ve not done so, the contractor (you) is liable for any outstanding debt owed. Register for the Construction Industry Scheme (CIS) to avoid this pitfall.

Insurance

When taking on subcontractors you should first contact your insurance provider to check whether there are any implications (to your policy) of subcontracting work.

A LOSC will need to be included on your employers’ liability insurance as they’re classed as employees while carrying out work for you.

A BFSC will need to have its own insurance and indemnity policies in place. Check they have public liability insurance with a level of indemnity that’s not less than your own.

They should also have the relevant insurance cover for their own employees (employers’ liability insurance), and the tools, equipment, and materials they bring onsite.

Admin

While a BFSC works under their own supervision, a LOSC will need an element of supervision from you (or a member of your team). It’s up to you to tell them their working hours, their work location, and their daily tasks.

You will need to make sure a LOSC follows your health and safety policies and procedures. Conversely, a BFSC will be responsible for their (and their team’s) own health and safety.

Other considerations

Whichever route you choose, if you hire a subcontractor, you must register for the CIS. It is compulsory under UK law.

This means that all payments from contractors to subcontractors are accountable. Contractors are required to make deductions from cash-in-hand payments to subcontractors in order to pay tax and National Insurance to HMRC.

A written contract is advisable. This should outline the work that’s expected of the subcontractor, the time period within which the work should be completed, and the amount you’ve agreed to pay.

If you’re working with a BFSC on a larger project, you can have a legally-binding subcontractor agreement drawn up by a solicitor.

For more information about choosing the right subcontractor for your business, check out this post.

Quick summary

Labour-only subcontractors (LOSC) are ideal if you need greater flexibility. LOSC work at your discretion, so you set the hours, the work schedule, and the work location.

You will however need to add any LOSC to your insurance policy to make sure you’re covered should there be an incident on site.

There is no guarantee with LOSC, so if they don’t complete the job to a high enough standard, or they don’t show up for work, it’s an additional headache for you.

Bona-fide subcontractors (BFSC) are normally better suited to larger projects and will quote for a job upfront.

They often bring specialist skills to the project that you might not have within your own business. BFSCs, therefore, work under their own supervision, set their own schedule, and are fully responsible for the completion of their part of the project.

The additional benefit of a BFSC is that they need their own insurance, for example, public liability, employers’ liability, and insurance for their tools and materials.

It’s crucial you understand the difference between the two types of subcontractor, if only for the insurance implications. If the tradespeople subcontracted to your business aren’t covered by the correct insurance, you leave yourself open to potentially costly claims should the worst happen.

Until you’ve built a trusted bank of tradespeople you can call on, there’s naturally going to be an element of risk associated with subcontracting work:

• Will they complete the job to the same high standards as your business?
• Will they turn up when they’re meant to?
• Will they be available when you need them for future projects?

One way our tradespeople reduce this risk is to contact other certified members through the Checkatrade network.

How using other Checkatradespeople is less risky

Checkatrade members are checked and checked again (a gruelling 12 times). So you (and the thousands of customers who use our site) can be assured you’re enlisting the services of genuine, hard-working tradesperson, just like you.

Get your business on Checkatrade, and then give the search a try. Whatever professional you’re looking for and whatever location, you can see how homeowners have rated them, and hire them to work with you.

Common questions answered

What is the difference between labour-only and bona-fide subcontractors?

A labour-only subcontractor is purely the labour. Labour-only subcontractors work under your discretion and normally use your tools and materials. Bona-fide subcontractors, in comparison, work under their own instruction, using their own tools and materials.

Are LOSC employees?

Labour-only subcontractors (LOSC) are considered employees of your business while they’re working with you. You, therefore, need to contact your insurance provider regarding your employers’ liability insurance to make sure your policy covers the additional labour.

Can a labour-only subcontractor be self-employed?

A labour-only subcontractor can be self-employed, but while subcontracted to your business, they are classed as an employee. Your insurance needs to reflect this.

Are bona-fide subcontractors employees?

No. Bona-fide subcontractors are not classed as employees of your business.

Do subcontractors need their own insurance?

This depends. If they are labour-only subcontractors, they do not need their own insurance. They are classed as employees of your business and as such your insurance will need to include them (contact your provider to check your policy details). A bona-fide subcontractor will need their own insurance. We recommend you ask for details of this before you commit to using their services.

What does bona-fide subcontractor mean?

A bona-fide subcontractor is a subcontractor who works under their own direction, using their own tools and materials. If you work in construction, for example, you might subcontract the plumbing work to a specialist plumbing and heating company.

*Deep Blue Thinking 2021 Trade Perception Survey