SUBCONTRACTORS IN THE CONSTRUCTION INDUSTRY

Most businesses within the construction industry will be aware of the difficulties that are being faced by building contractors with regards to reclassification of sub contractors and the difficulties that can arise when the Contributions Agency decides to visit. Clearly it is in everyone's best interest if the contentious issues are considered before such a visit takes place. Whenever the Contributions Agency visits, they often seek to reclassify any subcontractor as being an employee. The National Insurance consequences are extremely significant. We can help you with this and a good starting point would be a subcontractor health-check on your subcontractors which we could carry out for you.

The major points that need to be considered when reviewing subcontractor relationships are to look in detail at the way in which the subcontractors actually carry out their work for the main contractor.

There are a number of points, which you should review critically to enable you to pay as little National Insurance as is possible. Let us work through a few of the major indicators, which suggest employment rather than self employment.

Provision of a Substitute
If the subcontractor is allowed to provide a substitute worker other than himself, this implies a business like relationship. The main contractor is clearly in a relationship with a business whereby certain services are provided. If, however, the relationship depends upon a named individual carrying out the duties, this would suggest employment rather than self employment.

Risk
Does the subcontractor share in the commercial reality of a business relationship? If, for example, it is agreed that should any work require rectification, the subcontractor will deal with this without making any further charge, he is clearly sharing in the business risk.

Where the main contractor puts right any faults that his customer feels need rectifying at his own expense, this suggests that the subcontractor is really an employee.

Public Liability Insurance
Anyone running a business would need to have public liability insurance, this suggests that they are aware of the commercial risks that they face. The absence of public liability insurance would suggest that they are not really running a proper business.

Working for Other Customers
It clearly helps if the subcontractor can demonstrate that he is working for more than one customer. Perhaps an advert in the local paper from time to time, which demonstrates that he is available for work, would also help to make the case that he was running a business. Wherever possible the contractor should avoid taking on individuals for long uninterrupted periods of time.

Labour Only
This is a favourite starting point for the Contributions Agency visitor. He will make the assumption that anyone who is only supplying labour only must be an employee. This assumption is not supported by the courts, where a number of decided cases have shown that labour only suppliers of services can still be regarded as being self-employed. However, to strengthen your case it is always helpful if it can be demonstrated that the subcontractor provides his own equipment, tools or transport.

Holiday/Sick Pay
It is fairly standard to not provide subcontractors with any holiday/sick pay. Clearly this would be most unhelpful to your case if it was shown that the so called self employed individual was in fact receiving any of these benefits, which are clearly benefits of employed status.

Contracts
It is a very good idea to have a formal contract with the subcontractor, which sets out in detail what their responsibilities are. However, it is equally important that the reality of the working relationship is reflected in this contract. There is no point having a contract, which bears no relationship to the reality of what is happening in the real world.

Invoicing
It would be helpful if the subcontractor invoices the main subcontractor on a regular basis, say weekly or monthly. His charges should be calculated by reference to the job rather than an hourly rate wherever possible.

If all of these items are dealt with then when the Contributions Agency staff pay a visit to your client, you will be in a much stronger position to resist their claims. We have had a lot of practical experience of dealing with the Contributions Agency. In our experience they will be reluctant to take a case all the way to tribunal unless they are certain of victory.

There are numerous other factors that also can be taken into account. Please talk to us for more detailed advice in your own situation.