Employers Liability Insurance

[Rob]

Today's question of the day...

 

If a freelance designer engages other freelancers on a job should they have Employers Liability insurance, or does the sub-contracted freelancers own PL cover this?

[mike]

Is it not covered by the co/client who engaged the initial freeelance designer? Am prepared to be wrong on this though... but good QOTD.

[Dave]

Rob,

 

My understanding is that it depends on the specifics of the employment relationship on a case-by-case basis.

 

If the other freelancers are considered to be independent contractors, then they are not employees and no insurance is needed.

 

In other cases, the other freelancers will be considered as temporary employees, in which case employer's liability insurance is compulsory.

 

This sort of thing has been discussed at length elsewhere as it also affects taxation etc. See here, for example.

 

Cheers,

 

Dave.

[TonyMitchell]

If the other freelancers are considered to be independent contractors, then they are not employees and no insurance is needed.

 

sorry Dave, but I have to disagree on this point.

 

all our labour is carried out on a subcontract basis, however under the Employers Liability section of our Combined Liability policy, our insurer specifies "clerical/managerial" and "labour only subcontractors" as separate entities and defines the premium based upon the turnover within these entities.

 

We took independent professional advice on this particular point earlier in the year, after finding there was a huge hike in the annual premium, which has been common throughout the insurance industry of recent.

 

We were advised that because our subcontractors are working for us on a very regular basis, and many of them working exclusive to us, although for Inland Revenue purposes they were deemed self employed individuals as far as the insurance is concerned, they MAY be deemed to be employees.

 

My understanding is that the exclusivity of the subcontractor working for one company was is the driving factor in this advice.

 

Tony

[gareth]

Difficult one - the Inland Revenue will usually do their damndest to prove that freelancers are employees, but I don't know how they'd fare if the 'client' was another freelancer ... being the devious shites they are, I suspect they'd probably go out of their way to prove that it was an employee/employer relationship, sting you for tax and NI, and then do you for not having employers' liability insurance.

 

On the other hand, perhaps they might try to dress it up as a situation whereby you as the 'employing' freelancer are acting as an agency on behalf of the 'employed' freelancer, in which case I imagine it would be a whole new kettle of fish ...

 

The only sure way to do it is for both freelancers to be trading as limited companies, and for one to purchase 'technical services' from the other - complete with all necessary paperwork - quotes, purchase orders, invoices, etc.

 

The PSA (www.psa.org.uk) is usually good for information regarding this kind of situation. Lightnix is also usually a wealth of good advice on these matters - if he's around I'm sure he'll chip in at some point.

[Dave]

Tony

If the other freelancers are considered to be independent contractors, then they are not employees and no insurance is needed.

sorry Dave, but I have to disagree on this point.

That's OK. I don't know exactly how employee is defined in law for insurance purposes.

all our labour is carried out on a subcontract basis, however under the Employers Liability section of our Combined Liability policy, our insurer specifies "clerical/managerial" and "labour only subcontractors" as separate entities and defines the premium based upon the turnover within these entities.

Recent legal judgements in the construction industry (from where the phrase originates) have tended to move the status of "labour only subcontractors" towards that of regular employees. Hence the need for these to be covered by insurance.

We took independent professional advice on this particular point earlier in the year, after finding there was a huge hike in the annual premium, which has been common throughout the insurance industry of recent.

Indeed. ;)

We were advised that because our subcontractors are working for us on a very regular basis, and many of them working exclusive to us, although for Inland Revenue purposes they were deemed self employed individuals as far as the insurance is concerned, they MAY be deemed to be employees.

 

My understanding is that the exclusivity of the subcontractor working for one company was is the driving factor in this advice.

Absolutely. If someone is working exclusively (or very regularly) for one client, I would find it hard to describe them as anything but an employee. They'd also have a job convincing the taxman that they were self-employed. Likewise if they were just providing labour.

 

Remember that the Government is cracking down on self-employment, as it has been used (and still is used) by employers to avoid giving employees rights, and by workers to gain tax advantages.

 

But my original point still stands. If someone is genuinely engaged on a self-employed basis and considered to be an independent contractor, then they are not legally an employee and do not need to be covered by employer's liability insurance. I did qualify my words by stressing that the decision has to be made on a case-by-case basis.

 

Rob's original post did not specify the details of the way the other freelancers were engaged and I was simply giving the widest possible viewpoint. There are plenty of situations where engaging a freelancer is very unlikely to be considered as employing someone. For example, if you engage a freelance board op with their own high-end desk, because employees do not have to provide expensive equipment to do their job. The scales tip the other way if you are just engaging someone to provide labour.

 

Dave.

 

P.S. Edited as I prematurely submitted it!

[Guest lightnix]

According to the HSE anybody working under instruction become the employees of the person giving the instructions. So if I take a full box of cable to the local crew chief and tell him that it's ready for the truck, then that's all there is to it. If I commandeer four local crew and instruct them to load the box onto the truck, they become my employees for the duration of that task or while they are doing work under my instruction.

 

Insurance companies like Torribles and Robertson Taylor now include Employers Liability as a part of their production personnel Public Liability packages. With Torribles it is an option, although they ask you to sign a disclaimer if you decide not to take it, saying that you have been recommended to do otherwise. With Robertson Taylor it is not an option. Here's how RT define an employee, it pretty much echoes the HSE view. Read it very carefully...

 

ìEmployeesî shall mean any persons under a contract of service or apprenticeship with the Insured, any person who is hired to or borrowed by the Insured, any labour master or person supplied by him, any person engaged by labour-only sub-contractors and any self-employed person performing work of a kind ordinarily performed under a contract of service or apprenticeship with the Insured - while working for the connection with the Insuredís Business. (bold type mine)

 

From an Inland Revenue point of view, the rules governing what constitutes an independent subcontractor are covered by the IR56 Regulations (for self-employed people) and the infamous IR35 Regulations (for Ltd. Co's). They are more or less the same thing, but with IR56 the responsibility (and tax liability) for ensuring that subcontractors meet the self-employed criteria lies with the client, with IR35 they lie with the subcontractor.

 

Also have a look at the Freelancing thread pinned to the top of this forum and follow the link in the first post by peter.

 

My opinion is that if you are working as a freelancer, not taxed under PAYE, then you really must have Employers Liability as a part of your insurance package these days. No two ways about it. Sorry.

[Big Dave]

I'm with Lightnix on this one. Many of the companies that I work for only use freelance labour for their jobs and as a result one of us is always designated as the senior person on site.

 

From discussions with my insurance company, if that senior person was me, I become responsible in part for the actions of the remainder of the crew and so require employers liability Insurance.

[Dave]

Without wishing to disagree with the above, if I engage Fred the decorator to paint my flat, does that then mean I'm his employer and I need to have insurance?

 

And would it affect things if I bought the paint etc (in other words, Fred was providing labour only).

 

Dave.

[Guest lightnix]

Not necessarily. AFAIK if you just tell Fred to "paint the flat by the end of Friday", it's kind of like me saying "this box is ready for the truck". If I start dictating Fred's working methods it might be a different story.

 

Look, I'm not telling or "advising" anybody to do anything here, or trying to be holier-than-thou about this. I'm just giving my opinion, based on the way I choose to conduct my business as a (semi-retired) freelancer. I made my choice as a result of advice I was given by people whom I believe to be competent to give it, i.e. H&S consultants and insurance companies, along with reading things like the contents of the links I put up in my last post. If other people choose differently, that is their decision.

 

But remember: having Employers Liability cover, even if you don't need it, will add a (tax deductible) couple of hundred quid to your premium. Not having Employers Liability cover and suddenly finding out you do need it could cost a whole lot more.

[TonyMitchell]

And would it affect things if I bought the paint etc (in other words, Fred was providing labour only).

 

Yes, Dave, certainly in my experience.

 

A few years ago I had an office cleaner visit weekly who was treated as a subcontractor, she would issue us a receipt and was paid out of petty cash.

My company supplied the cleaning materials and equipment.

 

Our accountant picked up on this and indicated that she must go on the payroll as she is an employee. However, if she were to bring her own vacuum cleaner on site and provide the cleaning materials, she could be treated as a supplier (subcontractor)

 

Tony

[TonyMitchell]

will add a (tax deductible) couple of hundred quid to your premium.

:P

 

I wish... couple of thousand more like ;)

 

Tony

[techwsussex]

In the first post it says freelancers engaged by a freelancer. My understanding is that if they work as freelancers, they are responsible for their own tax etc. and ideally should have their own insurance but that the leader is liable as an employer.

 

A friend of mine ran a crewing company and always employed ona freelance basis. This way he avoided alot of hassle with PAYE, as his employees had to do that themselves, but he was still insured up to his eyes (£25-30m, I think).

 

I'm not sure of this but I think his insurance was required rather than just a good idea.

 

I'll ask when I see him.

 

Owen

 

<_<

[Ben]

it all depends on how the work is given, it it is a "contract of work" then the initial freelancer is responsible as an employer, however if it is a "contract of service" where the freelancer is simply given the job and will work along side others then it is not the case and as long as each has their own insurance this is fine. for the latter there can be one whether the one finding others for the work or not that can define what will be done and when if this is in the intrest of the job. however I would think that in many circumstances there is room for disscussion as things cna almost always move alittle and where there is not then it tends to be for things like the truss must go up before you rig on it, so the fact that one will say lets get the truss up first is irrelevant, also it is fine if it is in the intrests of safety. or at least this is all what I was told by a friend who is a profeser of law specailsing in buisness and related issues.

 

Ben

[Guest lightnix]

I don't wish to be rude, but I'm afraid I found most of that last post almost completely unintelligible.

 

I've never actually heard of a "Contract of Work" before. The only two kinds of contract I know of which are relevant here, they are...

 

Contract of Service: "Freelancer" employed on a casual basis, taxed under PAYE, covered by employers insurance.

Contract for Services: Freelancers services engaged on a self-employed basis, with all that it entails.