How UK Businesses Can Manage Contractor Risks

Big Rise in Contractor Use Across the UK

With April’s payroll tax hike and higher minimum wage, UK businesses are increasingly hiring contractors instead of permanent staff. Advertised contract roles have surged by 22% since April 2025, while permanent job vacancies fell by 9%.

Over 180,000 jobs have been shed, especially in sectors like construction and hospitality, as firms look to cut costs and add flexibility.

“Businesses are now thinking ‘these self‑employed are a more attractive option, I don’t need to pay NI, I can save money.’”

This trend offers flexibility, but also new legal and insurance risks that FSB members need to manage carefully.

Why Firms Are Switching to Contractors

• Cost savings: No employer National Insurance or staff benefits to pay.
• Greater flexibility: Bring in skills only when needed.
• Access to specialist knowledge: Ideal for project-based work.

Understand the Risks and How to Stay Protected

“You have a legal responsibility towards your contractor. They have to work safely and owe a responsibility to you. Communication and co-operation are needed on both sides – something that requires active management.”

Not all subcontractors are the same. To protect your business, you must know the difference:

Labour‑Only Subcontractors

• Work under your direction (you set their hours and tasks)
• You supply tools or materials
• Legally treated like employees. So you’re responsible for their health & safety, and must insure them under your Employers’ and Public Liability policies
• If excluded, your policy may not respond to a claim plus potential HSE penalties.

Bona‑Fide Subcontractors

• Work independently, using their own tools.
• Manage their own insurance.
• You must verify they hold Public Liability insurance at least equal to your policy limit.
• Keep written proof, if they’re uninsured, your business could still be liable for damages.

“You will liable for labour-only subcontractors in the same way as a direct employee. So make sure they are included on your insurance as if they were employees.”

FSB’s Guide for Contractors and Freelancers

FSB’s free guide for members explains exactly which insurance contractors and solo professionals need including public liability, professional indemnity, and employers’ liability. It’s a practical resource to help you stay compliant and protected.

What FSB Members Should Do Next

1. Review your insurance schedule
   Confirm it covers your current working model, including subcontracted staff.
2. Always get proof of insurance
   Request up‑to‑date Public Liability evidence from bona‑fide subcontractors in writing.
3. Check your contracts and onboarding documents
   Clearly define responsibilities regarding insurance and risk.
4. Seek advice if unsure
   Misclassification or missing insurance can lead to rejected claims and fines.

“Correctly classifying subcontractors in your business is a crucial part of understanding your legal requirements and liability.”

Need Help? Speak to an Expert

Not sure if your subcontractors are covered, or just want peace of mind?

Call us for straightforward advice ☎️ 020 3883 7976

We’ll help you protect your business, prevent hidden risks, and ensure your insurance matches how you actually work.

Related Resources

🔗 FSB Free Guide: Insurance for Contractors and Freelancers.

🔗 FSB Insurance Service Blog: Employing Labour‑Only & Bona‑Fide Subcontractors.

🔗 FSB Insurance Service Blog: Stay Insured with Subcontractors.

🔗 HSE: Managing contractors a guide for employers.

This content is for general information only and is not intended to provide advice or a personal recommendation. Insurance cover is subject to the terms, conditions, and exclusions of the policy. Always consider your individual circumstances and seek professional advice before arranging insurance. External websites are not under our control and we are not responsible for their content.