Don’t let your subcontractors fall through the cracks

Subcontractor risk

Sometimes the unexpected can be a pleasant surprise — like finishing a job well ahead of schedule. Learning that you’ll have to pay for workers’ compensation coverage for a subcontractor when you weren’t expecting it — well, that’s a whole other kind of surprise.

In Australia, it’s increasingly commonplace for construction organisations to engage contractors, subcontractors, and labour hire to help perform essential business activities and skill-specific tasks. But who’s responsible for their safety?

You’ve probably got a good handle on your health and safety responsibilities regarding your own employees. But where do your non-standard workers fit in? How does this impact onsite risk and your liability if the unexpected happens?

Labour hire vs contractors – what’s the difference?

Knowing your duties and obligations starts with the type of arrangement. Labour contracting can be done in two different ways. The first way, labour hire, is where a business engages a labour hire agency to provide workers — who are employed and paid by this agency — to perform work under the direction and control of the host business.

The second type, contracting, is where a business engages a contractor to perform a certain task or function instead of having it performed by its own employees. Under this arrangement, the work may be performed by the contractor’s employees or sub-contracted to another contractor business. A subcontractor is an independent contractor that is hired by another independent contractor to help them to complete their contracted work.

Legal responsibilities and ownership of safety

The rise in labour hire workers and subcontractors across Australia throws a spanner into the works when it comes to safety and liability. If legal action is taken against you by any worker, you may find yourself in hot and very expensive waters.

Who is responsible for working conditions? Which party is liable for onsite injury? The truth is that the legal responsibility is going to vary based on the specific situation.

As a PCBU or Officer under the WHS Act, you have a responsibility for the health and safety of a contractor’s workers or any labour hire when they’re on your worksite.

To fulfil your duty of care under Australian health and safety law, you must provide necessary information, training, and supervision to enable everyone on site to work safely. Once engaged, the workers now form part of the system of work for which you are responsible.

Labour hire and subcontractor risk

When the boundaries of your company’s workforce stretch beyond its direct employees, you’ll need to pay close attention to a special set of risks. There are general concerns about the health and safety of labour hire workers onsite. This is because they are often:

  • Less likely to report health and safety issues: Often, they are reluctant or unable to raise OHS issues, due to their vulnerability to termination.
  • Less likely to receive workplace specific training and induction: Labour hire workers often receive poor inductions, training and/or having reduced familiarity of the rules governing OHS on each job site, as compared to direct hire workers.
  • Increase the risk of security breaches: Not understanding your security protocols increases the risk of breaches. Without following the correct processes, data and physical property can be exposed or damaged. Fraud, theft, and human error can cause significant problems to your business.
  • Exposed to greater work intensification pressures: An increase in competition for work and often lack of job security can be damaging to their mental health.

Insurance for labour hire

As an employer, how do you cover your back and ensure that you’re not leaving yourself open to expensive workers comp claims?

Construction sites are a complex place of work. Consider a typical building site. At any one time, there is likely to be many parties engaged to work on it including the head contractor, subcontractors, sub subcontractors and hired labour. The risk of injury or damage is higher than the average workplace — so insurance is an absolute must for all parties involved.

The main types of insurance are:

  • Professional Indemnity and Public Liability: refers to cover for losses that arise from the actions a person that put others in danger. These losses can damage a person or property, an omission of carrying out appropriate safety steps, causing financial loss or physical injury to a party. The importance of adequate professional indemnity and liability is crucial for businesses in Australia so that accountability is held when incidents occur that put others in danger.
  • Workers Compensation Insurance: A form of insurance payment to employees if they are injured at work or become sick due to their work, often covering wages while they’re not fit for work, medical expenses, and rehabilitation.

Worker to worker claims

Worker to worker claims are rife in today’s construction industry landscape and for those companies that engage their workforce via labour hire arrangements

A worker-to-worker claim is a claim brought by (or on behalf of) a worker employed by another company for personal injury damages following an incident in which the host employer or other contractors are liable. These claims are significantly more costly than typical liability claims because they often involve multiple respondents and liability disputes between the various contractors, so can also take longer to resolve.

An injured site worker, able to demonstrate that others connected with their injury were in breach of their duty of care, may undertake a common law action jointly against other parties. This gives the workers compensation insurer the opportunity to recover a proportion of the compensation payments from those found negligent.

Impact on insurance premiums

With the increase in litigation in worker to worker claims cost, many insurers are taking a proactive approach. Increasing premiums, applying large deductibles or avoiding liability risks are now common practice within the industry.

As an employer, you should focus on improving your risk profile can greatly maximise contractors’ ability to obtain insurance cover and lower deductibles for worker-to-worker claims. In addition to this you should ensure that subcontractors take out and maintain their own liability policy.

How we can help

While it’s crucial to review and update your risk management strategy as an employer regularly, you should also have the appropriate insurance solution in place as a safety net.

McLardy McShane can determine the best solutions for you and help you can keep your construction business safe, secure, and protected. Contact us today.

You might also enjoy:

Need some insurance or financial services guidance?

Request a free consultation or quotation.