For many businesses, subcontractors are a normal part of how work gets done. They provide flexibility, manage workload peaks, and bring in specialised skills when needed. 

From an insurance perspective, subcontractors can significantly change your risk profile, often in ways that aren’t fully understood until there’s a claim. 

Why subcontractors can still create risk for your business 

You hire a subcontractor to help complete a project on time. They are experienced, they have their own gear, and they’ve told you they’re covered. You’re good to go, right? Not necessarily. 

If subcontractors are working under your direction, representing your business or operating on your sites, liability can still arise for your business. This might include: 

• Injury to a third party 

• Property damage 

• Faulty or incomplete work 

Insurers generally consider the level of control and responsibility over the work, not just who is paid. 

Where businesses get caught out 

Most issues arise from how subcontractor exposure is managed and disclosed. Common pitfalls include: 

• Non-disclosure: If subcontractor’s use is not fully disclosed, it may impact how a policy responds at claim time.  

• Assumed Coverage Gap: A subcontractors insurance may respond to their own liability but may not respond to claims that attach to your business. 

• Blurred Classifications: Confusing subcontractors with labour hire or on-hired arrangements can create unintended gaps in cover. 

Subcontractors’ vs labour hire vs on-hired labour 

The terms are often used interchangeably, but insurers and legislation treat them differently. 

Subcontractors 

Subcontractors are independent businesses engaged to perform a defined scope of work. 

• Typically responsible for their own insurances, including workers’ compensation and liability cover 

• Often required to hold minimum insurance requirements under contract 

• May still create exposure for the principal depending on the level of control and supervision 

⚠️ WA Workers Compensation consideration: In Western Australia, if a subcontractor earns the bulk of their income from you and provides mostly labour (rather than materials), they may be “deemed” your employee for Workers’ Compensation. Undeclared, this leads to heavy back-payments or uninsured claims. 

Labour Hire (what you purchase) 

Labour hire involves workers being employed and paid by a labour hire provider, while working under the day‑to‑day direction of a host employer.  

In practice: 

• The labour hire provider is the legal employer 

• Workers are supplied to and directed by the host employer  

• The labour hire provider is generally responsible for Workers’ Compensation insurance 

• Host employers still carry significant duty of care obligations 

• Liability and responsibility may be shared depending on contractual arrangements  

On-hired Labour (a risk you create) 

On-hired labour occurs where a business supplies its own employees to work for another organisation.  

In practice: 

• Your business remains the employer for Workers’ Compensation purposes 

• Employees are directed day-to-day by a host employer 

• Employment obligations remain with the employer despite reduced operational control 

This arrangement can create additional insurance considerations because responsibility and control are separated, and standard policy wording may not automatically respond in all situations. 

Broker’s Tip 

A Certificate of Currency confirms cover at a point in time; it doesn’t guarantee cover for the duration of a project. If a subcontractor policy expires mid-project, the risk may shift back to your business. Regular verification and tracking of expiry dates is recommended.  

How to protect your business 

If you use subcontractors, these four steps are important: 

• Verify & Record: Maintain a current register of subcontractor insurance and expiry dates. 

• Define Control: Use written agreements that clearly outline responsibilities, control and liability. 

• Declare Everything: Ensure your broker has a clear understanding of how your business operates, including the percentage of turnover paid to subcontractors and the type of work they perform. Inaccurate or incomplete disclosure may impact your cover. 

• Review on-hired arrangements: If you on-hire staff to clients, confirm your insurance program is structured to respond to this exposure 

The bottom line 

Subcontractors are a vital part of many businesses and operations. The focus is not avoiding their use, but on ensuring your insurance arrangements accurately reflect how your business operates.  

Full and transparent disclosure to your insurer is Important to help prevent coverage gaps and unexpected claim outcomes. 

If you are unsure whether your cover aligns with your subcontractor arrangements, speak with a Centrewest broker today.