A bona fide subcontractor is one who works genuinely independently — supplying their own materials and equipment, working for other clients, carrying their own insurance, and deciding how the work gets done. A labour-only subcontractor supplies effort under your direction, typically using your materials and working to your instruction.
The distinction is an insurance-industry classification, not a legal definition. You will not find "bona fide subcontractor" in any statute. But it matters commercially, because it decides which of the people on your site your own employers' liability policy has to cover — and getting it wrong is one of the more expensive mistakes available to a principal contractor.
Why the term exists
Liability insurers need to know how many people a policy is genuinely exposed to. If a firm engages fifty labour-only operatives, the insurer is underwriting fifty people's injury risk regardless of what the contracts call them. If it engages fifty genuinely independent firms, each of those firms carries its own cover.
So insurers ask you to split your subcontractor spend between the two categories at renewal, and price accordingly. Declaring labour-only spend as bona fide understates the exposure — which is why an insurer may take a close interest after a claim.
What actually decides the classification
Not the contract's title. HSE's guidance on the Employers' Liability (Compulsory Insurance) Act 1969 is unusually blunt on this point:
"It does not matter whether you usually call someone an employee or self-employed or what their tax status is. Whether you choose to call your contract a contract of employment or a contract for services is largely irrelevant. What matters is the real nature of your relationship with the people who work for you and the nature and degree of control that you have over the work they do."
That last clause — the nature and degree of control — is the test. And note what it explicitly overrides: CIS status is not the answer. A subcontractor can be correctly registered under the Construction Industry Scheme, correctly verified, correctly deducted at 20%, and still be someone your EL policy must cover.
The indicators pointing toward "you may need EL cover"
HSE lists these as signs a person may be an employee for the purposes of the 1969 Act:
- you deduct national insurance and income tax from the money you pay them
- you have the right to control where and when they work and how they do it
- you supply their work materials and equipment
- you have a right to any profit your workers make
- you require that person only to deliver the service and they cannot employ a substitute if they are unable to do the work
- they are treated in the same way as other employees
The indicators pointing the other way
HSE lists these as signs you may not need cover:
- they do not work exclusively for you (for example, if they operate as an independent contractor)
- they supply most of the equipment and materials they need to do the job
- they are clearly in business for their own personal benefit
- they can employ a substitute when they are unable to do the work themselves
- you do not deduct income tax or national insurance
HSE adds an important caveat to that last one: "even if someone is self-employed for tax purposes they may be classed as an employee for other reasons and you may still need employers' liability insurance to cover them."
Most real arrangements sit somewhere in between and have to be judged as a whole. HSE says so directly: "it is for you to satisfy yourself of the status of the persons working for you and if you have any doubts, you should seek legal advice."
What the classification changes in practice
For a bona fide subcontractor, you check their insurance. They carry employers' liability cover for their own operatives and public liability cover for third-party risk. Your job is to obtain and diarise the certificates.
For a labour-only subcontractor, they are likely covered under your employers' liability policy, and you need to have declared them. Checking their certificate is not the control — telling your insurer about them is.
The statutory backdrop is section 1 of the Employers' Liability (Compulsory Insurance) Act 1969: every employer carrying on business in Great Britain "shall insure, and maintain insurance, under one or more approved policies with an authorised insurer or insurers against liability for bodily injury or disease sustained by his employees, and arising out of and in the course of their employment in Great Britain in that business."
HSE guidance sets the minimum at £5 million — "You must be insured for at least £5 million" — and the enforcement teeth are meaningful: "You can be fined up to £2500 for any day which you are without suitable insurance." A separate penalty applies to the certificate itself: "If you do not display the certificate of insurance or refuse to make it available to HSE inspectors when they ask, you can be fined up to £1000."
A jurisdiction note: the 1969 Act extends to England, Wales and Scotland. Northern Ireland has its own equivalent legislation, so if you operate there, check the NI position rather than assuming the 1969 Act applies.
Where firms get caught
The blanket assumption. Treating every subcontractor as bona fide because they invoice you and are CIS-registered. Invoicing is not independence, and HSE's guidance says tax status is not the test.
The declaration that never gets revisited. Your split between bona fide and labour-only spend is declared at renewal. If your mix shifts mid-year — a run of labour-only work you did not anticipate — the declaration is stale and the exposure is undeclared.
Certificates collected for the wrong reason. Collecting an EL certificate from a genuinely labour-only subcontractor feels like diligence, but it may be irrelevant to the actual risk. Meanwhile the same subcontractor may not be declared on your own policy, which is the exposure that matters.
The "one-person limited company" case. A sole director operating through their own limited company may or may not be genuinely independent depending on the working arrangement. The company structure does not settle it — the control test does.
A practical way to handle it
- Classify at appointment, not at renewal. Ask the control-test questions when you set the subcontractor up: do they supply their own materials, do they work for others, can they send a substitute?
- Record the classification against the subcontractor, with the reasoning. If an insurer asks how you arrived at your split, the answer needs to be more than an estimate.
- For bona fide subcontractors, obtain and track EL and public liability certificates with expiry dates.
- For labour-only, make sure they are inside your own declared numbers, and revisit the declaration if the mix shifts.
- Re-check when the relationship changes. A subcontractor who started supplying their own plant and now works under your direction with your equipment has moved category.
If you are genuinely unsure on a particular arrangement, take advice. Both HSE and the insurance market treat this as a facts-and-circumstances judgement, and there is no shortcut that makes it a clerical decision.
For how to check a subcontractor's insurance certificate once you have classified them, see our guide to verifying subcontractor insurance. For the full pre-appointment check sequence, see our subcontractor compliance checklist and our guide to verifying a subcontractor.
SubComply is being built to track subcontractor insurance certificates and expiry dates in one place, so the certificates you do need are current and findable. Join the waitlist to be notified when it launches.
Sources
- Employers' Liability (Compulsory Insurance) Act 1969, section 1
- HSE — Employers' Liability (Compulsory Insurance) Act 1969: a guide for employers (HSE40)
- Employers' Liability (Compulsory Insurance) Regulations 1998 (SI 1998/2573), Regulation 3
This guide is for informational purposes and does not constitute legal, insurance or tax advice. "Bona fide subcontractor" is an insurance-industry classification, not a statutory term, and the correct treatment of any particular arrangement depends on its facts — consult your insurer or broker, and take legal advice where the position is unclear.
Last reviewed: 30 September 2026