Business Insurance When Hiring Subcontractors UK: What You Actually Need to Know

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The Assumption That Gets Claims Declined

Bring in extra hands, the work gets done. The assumption that causes the trouble is that a subcontractor’s own insurance protects the business hiring them. It protects the subcontractor.

The distinction between a bona fide subcontractor and a labour-only one changes everything, including whether you need employers’ liability cover despite never having put anyone on a payroll.

The Distinction Insurers Make

Bona Fide

A genuinely independent business. They work for several clients, supply their own tools and materials, decide how the work is done, carry their own public liability, and bear responsibility for their output.

Insurers treat them as a separate business. Their work is usually noted on your public liability policy as subcontracted, and the risk largely sits with them, provided their cover is adequate and in force.

Labour-Only

Someone who works under your direction and supervision, uses your tools and materials, works exclusively or nearly exclusively for you, and has no real independence in how the job is done.

Insurers treat them much like employees for employers’ liability purposes, and so, in practice, do courts. If that person is injured while working under your control with your equipment, responsibility for their safety looks like yours. A self-employed invoice does not change it.

The consequence: engage labour-only subcontractors without employers’ liability and you may be uninsured for their injury claims and in breach of the Employers’ Liability (Compulsory Insurance) Act 1969.

• Minimum £5 million, with an insurer authorised by the FCA and PRA
• Up to £2,500 for each day uninsured
• Up to £1,000 for failing to display or produce the certificate

Narrow exemptions exist for an unincorporated business whose employees are all close family, and for a company whose only employee holds at least half the shares. Neither helps if your labour-only subbies are unrelated to you.

Liability Beyond the Insurance Question

Two legal points sit underneath this, and both run in the same direction.

Vicarious liability can extend past employees to relationships akin to employment, which is roughly where labour-only working sits. It does not usually extend to a genuinely independent contractor running their own business, which is another reason the classification matters.

Some duties cannot be delegated. In certain relationships, particularly where you have taken on responsibility for someone’s safety or care, hiring a contractor does not transfer your duty of care. You remain answerable for how the work is done.

Separately, under health and safety law you owe duties to people affected by your undertaking, not only to employees. In construction, CDM 2015 adds explicit duties around appointing competent contractors, planning the work and managing the site.

Employment Status Is a Tax Question Too

HMRC applies a similar analysis. Someone working under your control, with your tools, exclusively for you, may be a worker or employee for tax purposes regardless of how the arrangement is described, bringing PAYE, National Insurance and potentially holiday pay with it.

HMRC’s Check Employment Status for Tax tool gives an indication, and it stands behind the result only where the information entered is accurate and the engagement runs as described. Keep a copy of the output and the answers you gave.

One distinction worth drawing, because the terms get mixed up. These rules apply when you engage an individual directly. If the subcontractor works through their own limited company, the off-payroll rules are the relevant framework instead, and where the client is small, responsibility for status stays with the worker’s company rather than moving to you.

What Your Public Liability Policy Says

Most policies have a subcontractor section, and they differ more than people expect.

Covered, with conditions. Some policies extend to work carried out by bona fide subcontractors on your behalf, usually conditional on those subcontractors holding their own adequate cover. If one causes damage, your insurer may handle the claim and then pursue theirs through subrogation. No insurance at the other end means no recovery, and your own claims record carries it.

Excluded or rationed. Others limit subcontracted work or apply a ratio, such as requiring an endorsement or extra premium once subcontracted labour passes a proportion of turnover. Failing to disclose how much you subcontract can produce a declined claim on the grounds of non-disclosure, which is a worse outcome than paying the endorsement.

Talk to the broker before you start subcontracting, not after a claim.

Certificates: Collect and Actually Read Them

Collecting certificates before work starts is evidence the subcontractor carries cover, that it was in force while they worked for you, and that you took reasonable steps. All three matter later.

What to check:

• The named insured matches the business you engaged, not a trading name or a connected company
• The limit, with £1 million a floor for most trades and £2 million or £5 million commonly required by clients and main contractors
• Whether the limit is per claim or in the aggregate, because an aggregate limit shared across a year is a different product
• The expiry date, and a diary note to re-request on renewal if the job runs past it
• The activities covered, since a certificate for one trade does not cover another
• Employers’ liability, if they employ anyone themselves
• Any endorsements relevant to higher-risk work, such as heat work or working at height

Keep them for at least the limitation period: generally six years for contract and property damage, three years for personal injury running from the injury or from the date the claimant knew about it, and from a minor’s eighteenth birthday where they were under 18. Keeping them longer costs nothing and answers the question of who was on risk years after everyone has moved on.

Put It in Writing

The cheapest protection in this whole article is a written subcontract setting out the scope, who supplies materials and equipment, the insurance the subcontractor must hold and maintain, an indemnity in your favour, and an obligation to keep cover in place for a period after completion.

It also helps the classification question. A contract that genuinely reflects independent working, and is actually followed, supports the bona fide position. One that describes independence while you direct the work day to day does not.

When a Subcontractor Causes a Claim

Your client looks to you, because you are who they contracted with. You then look to the subcontractor under your arrangement with them, which is why their cover matters.

If they are uninsured, or their insurer declines, you either absorb it or claim on your own policy, where your insurer may ask what checks you carried out.

Faulty workmanship is the nuance to understand. Public liability covers damage or injury caused by the work, not the cost of putting the work right. If a subcontractor’s installation fails and the client wants it ripped out and redone, that rework generally is not covered, and contractors all risks policies carry their own defects exclusions. Damage the failure causes to other property is a different matter.

The CIS Overlap

If you work in construction, the Construction Industry Scheme applies alongside everything above.

You must verify subcontractors with HMRC and deduct from payments at 0% for gross payment status, 20% for those registered, and 30% for unverified or unregistered subcontractors. Returns are due monthly by the 19th.

One recent change worth noting: nil returns are mandatory again from 6 April 2026. A month with no payments to subcontractors needs either a return or an advance inactivity request, and the late filing penalties came back with it.

Two things CIS does not do.

It does not settle employment status. Someone can be CIS-registered and still be labour-only for insurance purposes and a worker for tax purposes. Deducting CIS is not evidence of independence.

And it is separate from the VAT domestic reverse charge, which has applied to most construction services between VAT-registered businesses since March 2021. Handling CIS correctly says nothing about whether your invoicing is right.

Practical Steps

1. Assess each relationship honestly. Directed worker or independent business?
2. Tell your insurer or broker the proportion of turnover subcontracted, the trades involved, and which type you use.
3. Get employers’ liability if you use labour-only subbies, which in most cases you will need.
4. Collect certificates before work starts and read them properly.
5. Use a written subcontract with insurance obligations and an indemnity.
6. Keep the paperwork for the limitation period at minimum.
7. Revisit when things change. A bona fide subcontractor who drifts into working only for you has changed category, whatever the original contract said.

FAQ

Do I need employers’ liability if I only use self-employed subcontractors?

Possibly yes. If they are labour-only, insurers and courts may treat them as employees. The test is the working relationship, not the invoice.

What is the difference between public and employers’ liability here?

Public liability covers claims by third parties such as clients and the public. Employers’ liability covers claims by your own workers, including those treated as workers. Engaging subcontractors can put both in play.

Does their public liability protect me?

No. It covers their liability. If you are jointly or primarily responsible, you need your own. Theirs matters for the recovery chain and as evidence of genuine independence.

What if a subcontractor cannot produce a certificate?

Treat it as a warning. Keep them off site until they can, and tell your broker before the work starts rather than after an incident.

Does using CIS mean they are self-employed?

No. CIS is a deduction scheme, not a status test. A CIS-registered subcontractor can still be labour-only for insurance and a worker for tax.

Business Insurance When Hiring Subcontractors: The Bottom Line

The labour-only versus bona fide distinction decides whether you need employers’ liability and whether your public liability responds as you expect. Get it wrong and you can face an uncovered claim, a daily fine and an HMRC status enquiry from one incident.

Before the next engagement: classify the relationship honestly, tell your insurer how much you subcontract, collect and read the certificates, and put the arrangement in writing with an insurance clause and an indemnity.

And review it periodically, because the classification follows how people actually work rather than what the contract said when they started.

This article is general information about insurance, tax and UK law, not advice, and it does not take account of your circumstances. Status tests, CIS rules and policy wordings change. Speak to an FCA-authorised broker and a qualified accountant about your own arrangements before relying on anything here.