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How the Employment Status of Your Workers Impacts Your Insurance

07 Jun 2019
Inspire Insurance

Don't Get Caught Out

The UK gig economy makes up an estimated 15 percent of the nation’s workforce, according to the Office for National Statistics. Your organisation may even employ some members of this group if you have volunteers, seasonal employees, contractors and other kinds of non-traditional staff members. Often these are classified as Bona Fide Sub Contractors (BFSC) or Labour Only Sub Contractors (LOSC). Just as you do for your full-time employees, you have a legal obligation to provide these individuals with a safe working environment and in the case of LOSC employment rights.

However, even though some gig economy members may be independent workers, your organisation should not label them as self-employed. If you do, that could void their employment rights. To ensure all UK employees are protected, the government requires most businesses, with few exceptions, to have a thorough employers’ liability (EL) insurance policy.

A comprehensive and effective EL policy should provide cover for the following types of employees:

  • All permanent employees
  • Contract, casual and seasonal employees
  • Labour-only subcontractors (LOSC)
  • Temporary staff—including students and people on work placements
  • Volunteers, advisors, referees, and marshals

The HSE enforces this rule and can fine your organisation up to £2,500 every day if you do not have the appropriate level of insurance. In general, organisations are required to have at least £5 million of EL cover, yet depending on your organisation’s particular risks and liabilities, you may choose to increase the amount of cover. If your organisation does not comply, you could receive fines, penalties and your cover may even be invalidated.

The following information is intended to explain the different types of sub-contractors and how they are categorised by insurance companies for purposes of determining whether Employers Liability Insurance is required.


Bona Fide Sub Contractors

Bona-fide sub-contractors are generally deemed to be contractors who work without direction from the Insured, hold their own insurance and usually provide their own materials and tools. As long as they are not working under the direction of the Insured, have their own legal liabilities and insure for themselves, there is no need to include them in the count of employees.

What insurers will not do is extend the insured’s policy to include the legal liabilities of the bona-fide sub-contractor – they should have their own public liability insurance in their own name.

Please note that it is a condition of most insurance policies that the Insured (the main contractor) checks that bona-fide sub-contractors have their own public liability cover to at least the same limit of indemnity as their own before they appoint them.


Labour Only Sub Contractors

Labour only sub-contractors should be treated as Employees for the purposes of cover under this type of insurance. Generally, they work under the direction of the Insured and do not provide their own material or tools (with the exception of small hand tools). Cover would, therefore, be arranged for LOSC by the main contractor under their policy.


Determining BFSC or LOSC Status

Whilst it is difficult sometimes, it is important to try and correctly determine the status of any sub-contractors to ensure that the cover provided by the policy is adequate. Failure to provide the correct cover could result in any claim not being met by an insurer and a prosecution from the HSE.

If In Any Doubt, Contact the Specialists at Inspire

Damion McGarry from Inspire Insurance says: “Don’t get caught out by not having the right cover when it comes to your employees. If you’ve got people working under your instruction, it’s more than likely that you will be responsible for their welfare. If you’re in any doubt at all, contact me or my colleagues at Inspire Insurance and we’d be happy to offer you advice.”

Inspire Insurance are specialists in the construction industry serving a number of different contractors across a variety of specialist areas including Liabilities, Insurance Backed Guarantees, Performance Bonds, Professional Indemnity, Commercial Property and Motor Fleet. For additional guidance on providing your employees with a protected working environment or for more information about any of the services listed, contact Inspire Insurance today on 02476 963432 or visit

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