A subcontractor is an independent business. They agree to provide agreed services for a set fee (and possibly duration) under a contract for services. When you hire them you become their client. In simplest terms, they are not a part of your business, you have no legal line management over them, you don’t manage or supervise them and you don’t tell them how they’re going to do their work. You have outsourced your own company’s work to them and they are effectively delivering the service to you or to your customer ‘as if they were you’.
This is an important distinction. A subcontractor is bound under a contract FOR services (ie. you are buying their services). An employee is bound under a contract OF service (ie. a contract of employment).
|You can hire a contractor/ subcontractor when you need more flexibility||Contractors/subcontractors may cost your business more than the equivalent daily rate for employing someone|
|You can use a contractor/ subcontractor for one-off jobs and jobs requiring specialist expertise or fast turnaround||By relying on contractors/subcontractors, your business does not acquire or develop skills inhouse|
|Your permanent staff can concentrate on the core business||Permanent staff may resent contractors being paid more money for doing similar work to them|
|Some contractors/ subcontractors can start the work or project at short notice, even when large numbers of workers are required||If you use a contractor that then uses a subcontractor, you have no direct control over the quality of subcontractors’ work|
|You can often specify the type and duration of contract you need for the job||Contractors/subcontractors may not appreciate your business culture and may lack the motivation and commitment of permanent staff|
|You have no PAYE or National Insurance contributions administration for contractors/ subcontractors||Workers can be employees or subcontractors of the contractor – you need to understand relevant tax implications and other rights.|
|You can obtain temporary cover for a permanent staff job or work that needs doing|
Because of the difference in contract, subcontractors are not usually considered employees. However, even though you call them a subcontractor there are occasions when they would still, legally, be considered an employee.
If so, they would have the full range of employment rights, for example the right to claim unfair dismissal and the right to maternity leave etc.
In summary, generally speaking, if the answer is ‘Yes’ to all of the following questions, then the worker is probably an employee:
If the answer is ‘Yes’ to all of the following questions, it will usually mean that the worker is self-employed:
If you are unclear about this then it is important that you seek expert legal advice.
It’s usual, when using subcontractors, to negotiate a reduced fee so that you can then charge this on to your client/consumer at a higher cost.
As a result you may wish to consider stipulating, in their contract, that they will only be paid if you are paid by the client – thereby reducing the risk to your business.
Both you and the subcontractor have responsibilities under health and safety law. You both need to take precautions to reduce this. If relevant, you should be prepared to ensure that, when selecting your subcontractor, you have asked them about their risk assessments and health and safety policies.
If you are using subcontractors your employer’s liability insurance will not cover them. You will also need to have public liability insurance (PLI).
Your PLI policy should cover contractors/ subcontractors working for you away from your premises unless the contractors/subcontractors have their own PLI with the same level of cover. Many contracts for service stipulate that subcontractors MUST hold their own.
You may need business liability insurance cover for services provided to a customer by your business through a sub contract.
Like many commercial contracts, the exact structure of this agreement will be personal to you and your business. You should seek advice from a solicitor, who will be able to discuss your objectives and projects, before recommending an appropriate draft contract. As a basic list, however you should include:
Some business, who regularly use subcontractors, put in place open-ended contracts, thereby allowing them to regularly use the same subcontractor without the need for lots of separate contracts.