Do your subcontractors need employers' liability cover?

If you employ people in England, Scotland or Wales, employers' liability insurance is compulsory from the day you become an employer. The policy must provide at least £5 million of cover and must come from an authorised insurer.¹³ The harder question for a builder, roofer or electrician is who counts as an employee once subcontractors are on site.

The label on the paperwork is not the answer

The law requires cover for people you employ under a contract of service or apprenticeship. The Health and Safety Executive says it does not matter whether you usually call someone employed or self-employed, or what their tax status is. What counts is the real nature of the relationship and how much control you have over the work.²

That catches a common assumption in construction. A worker can be self-employed for tax and still be treated as your employee for this purpose.²

Signs you may need to cover them

HSE's guidance points towards cover being needed where several of these are true:²

• You deduct income tax and National Insurance from their pay.
• You can decide where, when and how they work.
• You supply their materials and equipment.
• Any profit from the work belongs to you.
• They must do the job personally and cannot send a substitute.
• They are treated like your other staff, doing the same work on the same terms.

Signs you may not

The same guidance points the other way where the person looks like a separate business:²

• They do not work only for you.
• They bring most of their own equipment and materials.
• They are clearly in business for their own benefit.
• They can send a substitute if they cannot do the work.
• You do not deduct tax or National Insurance, though this alone does not decide the matter.

Who is exempt

There are narrow exemptions. The two most likely to matter to a small trade business are these:²

• A family business where every employee is a close relative. This does not apply if the business is a limited company.
• A company whose only employee is its owner, where that person holds 50% or more of the issued shares.

A one-person limited company can therefore be exempt, then lose that exemption when it takes on its first worker. Check again each time your headcount changes.

What happens if you are not covered

You can be fined £2,500 for every day you are not properly insured. Failing to display your certificate, or to show it to an inspector who asks, can bring a further fine of £1,000.¹ The certificate can be displayed electronically if your staff know where to find it and can reasonably reach it.²

The larger risk is the claim itself. Without valid cover, compensation for a serious injury falls on the business.

What to do this week

• List everyone who works for you and run each person through the two lists above.
• Tell your insurer or broker how many workers of each type you use, and get their answer in writing.
• Ask independent subcontractors for evidence of their own insurance before they start.
• Check your insurer on the FCA's Financial Services Register.⁴
• Keep old policy records. There is no longer a legal duty to keep expired certificates, but HSE strongly advises it because some diseases appear decades after exposure.²