Whatever sector you operate in, using subcontractors can have many benefits. It’s cost effective, as you only pay for the work undertaken and don’t have to commit to a full-time employee. Plus, the people you hire are usually experts at what they do, and often have access to software and equipment that you might not.

Whether you need one-off help with a project that’s larger than usual, or you prefer to ask different people to assist with your workload each time, it’s important to know where you stand with your insurance. Many subcontractors will already have their own cover, but that’s not guaranteed, so it’s your responsibility to check.

The majority of our clients require their subcontractors to have Professional Indemnity and Public Liability insurance, as such, these are the core areas that we focus on in this blog.

What should I look for in my insurance?

Insurance policies are there to protect your business against third-party legal action that might arise from your activities. They step in for anything you’ve agreed to deliver, even when those services are provided by contractors – yet that still needs caution.

It’s important to make sure your insurance isn’t invalidated by a subcontractor’s actions. We recommend the following:

Activity scope

Firstly, check whether their activities fall within your current business description. If they don’t, the subcontractor definitely needs their own insurance.

Say your business produced video content for example. It would be pretty standard for the insurance policy to exclude the use of drones. This is because they’re a heavier-risk activity, with the potential to cause greater damage or injury. That’s also why their insurance requirements are regulated by the Civil Aviation Authority.

A video producer who wants to incorporate drone footage into a project would therefore ask a specialist drone operator to carry out the work. This contractor should have their own insurance in place, as without it, if the video producer was to be sued for injury or damage caused by the drone, they would be uninsured, and have to meet potential costs themselves.

Individuals who deliver heavier-risk functions are almost always bona fide subcontractors. We’ll discuss this term in more detail later in the blog.

Policy stipulations

Next, check if there’s a clause within the policy which states that all subcontractors need to be insured, and that this insurance needs to meet a certain level. If the answer is yes, but the contractor doesn’t have cover, and they make an error, damage something or injure someone, you’ll find yourself uninsured and facing a hefty bill.

Whenever there’s a clause such as this, it’s wise to look if your standard terms of engagement, and any you agree to, state that the contractor should have the required level of insurance. It’s also advisable to go beyond that and obtain copy certificates evidencing this cover. At the very least, this should include the basic information about their policy, such as the renewal date, insurer, limit and policy number.

Where possible, we advise against accepting these clauses in the policy, as they are onerous. They can also be problematic in the digital sector, as freelancers are often from overseas territories where things like Professional Indemnity insurance aren’t always easily available.

What’s the difference between office-based work and manual activity?

Public Liability insurance will almost always include cover for subcontractors doing office-based clerical activities, because the risk is usually very low. When looking at heavier manual activities, insurers are more likely to explicitly state that insurance is required.

For example, a business running events would be fine to engage contractors to hand out flyers or assist with administration on the day. However, when it comes to riskier work such as stage erection, security or entertainment, insurers would almost certainly expect the contractors engaged to have their own insurance in place.

Any business that uses contractors should always make their insurers aware, and ensure their contractor payments are clearly shown when providing wage estimates.

What about labour-only and bona fide subcontractors?

These are two terms that get used a lot when it comes to insurance, and although there can sometimes be grey areas, they’re usually easy to differentiate.

Labour only

This is known as such because the individuals work under your control and supervision, essentially providing you with labour. They tend to use your equipment or tools, and follow your policies and risk management procedures.

Under UK law, labour-only subcontractors would usually be considered an employee of your business, and therefore payments to these contractors need to be declared as part of your Employers’ Liability wage figures.

Bona fide

Bona fide subcontractors aren’t generally classed as employees because they’re in control of their activities. As well as working under their own supervision, they also use their own tools and equipment. In some cases, they even have employees themselves.

Because of this, all bona fide subcontractors should already have adequate insurance in place. If they don’t, and you hire them, any damage or error will be uninsured, and it will be your responsibility to pick up the fees.

How RiskBox can help

Here, we’ve covered Professional Indemnity and Public Liability, but there are other areas to consider when taking on subcontractors, such as Contract Works, Producers’ Indemnity and Cyber & Data. Your insurer or broker can tell you more about these, or you can reach out to RiskBox.

We’re a friendly team of insurance experts who want to make sure you and your organisation have the best protection possible. Speak to us today by calling 0161 533 0411, emailing info@riskboxuk.com or filling in our online contact form. We’ll get back to you as soon as possible.

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