Originally published in August 2021. Updated February 2026 to reflect current insurance guidance and industry practice.

In 2026, subcontractor status remains one of the most misunderstood — and often most expensive — insurance grey areas for businesses that rely on contractors.

Whether you operate in the lift sector, construction, facilities management or any industry that relies on specialist contractors, understanding the difference between a Labour Only Subcontractor (LOSC) and a Bona Fide Subcontractor (BFSC) is critical.

Getting it wrong can affect everything from insurance cover to liability and compliance.

We regularly see businesses engaging maintenance engineers, installers, refurbishment specialists and technical contractors without fully considering how their status is defined for insurance purposes.

In this refreshed guide, we revisit the key differences, clarify common misconceptions, and highlight why reviewing subcontractor status should form part of your regular risk management process.

Why is it so important to determine the correct status of a subcontractor?

The distinction directly affects your liability. It determines the extent to which you are responsible for injury to that subcontractor, and for any damage or loss arising from their work.

Insurers assess this carefully when calculating your exposure and setting policy terms.

Subcontractor arrangements are scrutinised closely at renewal and at claim stage. Clear documentation and accurate classification are essential to ensure your cover responds as expected.

If a subcontractor is incorrectly classified, insurers may apply the wrong premium or terms, which can lead to additional charges, cover restrictions or declined claims.

A breach of a bona fide subcontractor condition can also result in a rejected claim.

There are wider implications too. If a subcontractor should legally be treated as an employee, failing to recognise this may create issues under the Employers’ Liability (Compulsory Insurance) Regulations 1998, potentially exposing the business to penalties.

Getting the status right from the outset protects your cover, strengthens your claims defensibility, and avoids difficult conversations later.

How should you classify a subcontractor?

There is no single statutory definition of a labour only or bona fide subcontractor. Instead, classification is shaped by established legal principles and case law.

Your written contract is important, but it is not the only factor. Agreements may also include verbal terms or implied working arrangements.

If a dispute arises, insurers and courts will look beyond the paperwork. They will examine how the relationship operates in practice:

• How much control do you exercise?
• Who provides tools and materials?
• Who directs the work?
• Who carries the financial risk?

In other words, the reality of the working arrangement carries more weight than the label used in the contract.

This is why it is essential to review not only what your subcontractor agreement says, but how the day-to-day working relationship functions.

What are the different types of subcontractor?

There are two main categories:

Labour Only Subcontractor (LOSC)

A labour only subcontractor works under your direct supervision and control. In practice, they operate much like an employee, even if they are technically self-employed.

An LOSC typically:

• Works under your method statements and risk assessments
• Uses your tools, materials and equipment
• Is paid hourly, daily or weekly
• Does not carry financial risk for the project

Because of the level of control involved, an LOSC is usually treated as working under a contract of service and regarded as part of your workforce for insurance purposes.

This means:

• Their payments should be included in wage roll declarations for Employers’ Liability
• You owe them the same health and safety duties as PAYE employees
• If injured, claims would usually fall under your Employers’ Liability cover
• You may also have vicarious liability for damage caused during their work (in other words, you could be held legally responsible for something they do while working for you)

Even if they hold their own insurance, that does not automatically change their status.

Bona Fide Subcontractor (BFSC)

A bona fide subcontractor operates as an independent contractor. They are engaged to deliver a defined service or outcome, not simply provide labour.

A BFSC typically:

• Works under a contract for services
• Decides how, when and by whom the work is completed
• Provides their own tools, materials and equipment
• Carries financial risk for the job
• Holds their own liability insurance

You would not normally include a BFSC under your Employers’ Liability cover, and you would not usually be vicariously liable for their actions.

However, claims are often initially directed at the principal contractor. Insurers may provide limited contingency cover under Public or Product Liability policies, meaning some protection may apply in certain circumstances.

If a court determines that the working relationship resembled employment in practice, the classification could be challenged, which is why documentation and operational consistency are so important.

A bona fide subcontractor should also be able to provide evidence of their own insurance, operate independently, and hold relevant trade qualifications or certification where required (for example, Gas Safe registration in the heating sector).

LOSC vs BFSC – Quick comparison guide

 

Labour-Only Subcontractor (LOSC)	Bona-Fide Subcontractor (BFSC)
Works under your direct supervision	Works to an agreed specification but decides how the job is completed
Follows your method statements and risk assessments	Creates their own method statements and risk assessments
Usually works mainly for your business	Typically works for multiple clients
Paid hourly, daily or weekly	Paid a fixed price for the job
Uses your tools and materials	Provides their own tools and materials
Carries little or no financial risk	Carries financial risk for the project
Usually cannot subcontract the work	May subcontract elements of the work
May hold insurance but treated as part of your workforce	Holds their own liability insurance as an independent contractor
Included in Employers’ Liability calculations	Not included in Employers’ Liability declarations

 

Remember, classification is determined by how the relationship works in practice, not just by what the contract says.

Getting this distinction right protects both your compliance position and your insurance cover.

Insurers are placing increased scrutiny on subcontractor arrangements at renewal. Clear documentation and accurate classification are essential to ensure claims are defensible, and that cover responds as expected.

Misclassification can lead to under-declared labour costs, incorrect premium calculations, and gaps in Employers’ Liability cover.

LOSC vs BFSC: Practical examples

Here are two real-world examples of how the distinction works.

Example 1:

A lift installation company engages an engineer to assist on installations using its own tools, working under its supervisors and following its method statements. The engineer is paid daily and does not carry financial risk. In practice, this arrangement may resemble employment.

Subcontractor type: Labour Only (LOSC)

Example 2:

A hydraulic specialist is brought in to diagnose and rectify a lift fault, quoting a fixed price for the job, using their own equipment, and operating independently. They provide evidence of their own insurance and relevant technical certification.

Subcontractor type: Bona Fide (BFSC)

These principles apply across all industries. For example, a plumber installing systems under their own terms and insurance would typically be bona fide, whereas a roofer working under direct site supervision and paid hourly would likely be labour only.

Do you have the correct liability cover in place?

Incorrect subcontractor classification could leave you exposed should you need to make a claim.

Before your next renewal, take the opportunity to review how your subcontractors are engaged, declared and documented.

A conversation now could prevent underinsurance, claims disputes and unexpected premium adjustments later.

If you are unsure whether your subcontractor arrangements are correctly reflected in your liability cover, speak to your usual Robert Gerrard adviser, or contact our commercial team for a tailored review.