As new business models emerge and the “Gig Economy” takes hold, understanding working relationships and the distinctions between businesses, contractors, workers and employees is becoming increasingly complicated. So, it’s more important than ever for brokers to provide guidance on who does and doesn’t need to be included in wage roll declarations for employers’ liability cover. Getting this wrong could make declarations wildly inaccurate – as a statutory cover insurer would probably have to pay the claim, but if estimates were massively understated and insurers were not clear on who was covered, they could seek to recover the cost from your client.

There have been a number of recent legal cases relating to employment status – Pimlico Plumbers, Uber, Excel, CitySprint and Deliveroo. Individuals in these cases have been fighting to be recognised as workers rather than self-employed contractors. A ‘self-employed contractor’ has fewer rights compared to a worker who has rights to benefits such as minimum pay, paid holidays and sick pay. An employee has further rights relating to wrongful or unfair dismissal. In these cases, with the exception of the Deliveroo case which was settled out of court by the business before it progressed to a full employment tribunal, the plaintiffs were held to be workers and not employees. Deliveroo accepted no liability in the case, so we are likely to see more and more of these cases in the future.

An example of an employee in a UK liability policy would be any person who is:

a) under a contract of service or apprenticeship with the insured;
b) borrowed by or hired to the insured;
c) a labour master or supplied by a labour master;
d) employed by labour only sub-contractors;
e) self-employed;
f) under a work experience or training scheme;
while working under in connection with the business.

The above wordings or similar versions have been utilised for many years even though more recently homeworkers, outworkers and voluntary helpers have been added. The important point here is that both a standard employee (under a contract of service or apprenticeship) and a self-employed person are both included within the definition. However, there is no insurance definition for “worker”. Under the Employment Rights Act 1996, a ‘worker ‘is defined as:

“An individual who has entered into or works under a contract of employment or any other contract whereby the individual undertakes to do or personally perform any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer”.

In other words, a worker who is doing work under a contract but not for their own client or customer. This would fall under the insurance employee definition above.

From an insurance point of view the real dilemma is whether someone is a labour only subcontractor (LOSC) or bona-fide subcontractor (BSFC). A LOSC is regarded as an employee but a BSFC is not. In addition, there are labourers sourced from labour hire companies to consider. Sometimes it is difficult to differentiate between the three, but it is critically important to be able to do so.

An employers’ liability premium is based on wage roll, which will be the annual amount paid to all those persons that fall within the insurance definition of ‘employee’. Because these employees carry a risk, insurers will want to collect a premium commensurate, so it is vital to know who are LOSCs and include them in the wage roll figure.

In general terms a LOSC merely supplies their own labour whilst a BFSC can supply materials and equipment too and, importantly, have their own insurance. More specifically though it comes down to control. The table below may help:


Labour Only Subcontractor

Bona-fide Subcontractor

Labour Agency Contractor

RemunerationWeekly or monthly by wages by the employer. This can include overtime and bonuses.Contracted price for the jobPaid by the agency
Materials and equipmentUsually supplied by the employer. (This may include tools too although a LOSC may have his own.)Usually supplied by the BFSC as part of the contract.Provided by the hirer
Supervision and controlUnder the direct supervision of the employer who can dictate how, where and when work is to be done.Under their own control and supervision.Under control and supervision of the hirer
Working hoursUsually a fixed numberDecide their own hours for the job in hand.Could be either a fixed number of hours or the required hours for the job in hand
Required taskDo it all themselvesCan do it themselves or hire in others to do it at their own expense.Responsibility of the hirer

Other factors

Own insuranceNOYESContractor may or may not have their own insurance
Deficiencies corrected as own expenses and timeNot necessarilyYESResponsibility of the agency
Income consequences for wrong pricingNOYESN/A
Work for other partiesNot usually at the same timeYESPossibly
Can employer assign them another taskYESNO. Would have to renegotiate contract.Possibly

As you will no doubt be able to see, this is an increasingly tricky issue to navigate, so as brokers it’s important to ensure you help your clients understand who a “worker” is and who just does work! At Miles Smith, we recommend that in cases where the real status for insurance purposes and potential future liability is unclear the best course of action is to fully disclose to insurers the methods, employment relationship and the relevant contract terms between the parties. This will unequivocally allow insurers to make a specific judgement and ensure that future issues are avoided.


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