Labour-only subcontractors – cheap and convenient? Or fraudulent and dangerous?

Labour-only subcontractors – cheap and convenient? Or fraudulent and dangerous?

Everything you need to know about Labour Only Sub-Contractors

Labour only sub-contractors, by this we mean companies, supplying skilled or unskilled labour to recruitment agencies or contractors, have increased dramatically in number over the last few years.

At first glance, these companies seem like a good idea – Agencies or Contractors deal with one person, pay one invoice and get access to a large number of tradespeople or labour, often at short notice.  

However, these companies are often referred to as “labour pimps” for a reason; the labour supplied is often from Eastern Europe, or further afield, and many of whom are in the UK purely to work for the company making the supply. What checks are being done to ensure that workers have the right to work in the UK? And if you are checking documents, are they genuine? 

Further, do agencies or contractors ensure that the people being supplied to the site are not subject to slavery? Are they being forced to work against their will, or subject to abuse from the company controller? Are they in possession of their own passport or bank accounts? Are they being paid correctly, or above National Living Wage? Where do they live? – it is not uncommon for large numbers of workers to be living in one house, possibly paying inflated rent to the company owner. 

Can you communicate with the workers to ask these questions?

Agencies and Contractors have a legal and moral duty to ensure that workers on sites are not subject to modern slavery and to comply with their own Modern Slavery Statement – a legal obligation if turnover is in excess of £36M.  

Further, we often see these companies disappear and reappear, with a new name or company director as the controlling party – the suspicion is that VAT, CIS, PAYE and/or NIC is not paid across to HMRC before the company is dissolved. HMRC have the right to pursue missing taxes up the contracting chain – if a supplier does not pay appropriate deductions to HMRC, and they are unable to recover from the liquidator, the agency or contractor can be made liable for the missing taxes. This is referred to as the “Kittel Principle” and is now well established in law.

Does the rate you are being charged seem “too good to be true”, or significantly cheaper than other providers? You need to be sure that the reason for this is not because the supplier is acting illegally – for example by not paying monies owed to HMRC, deducting money from workers or paying below minimum wage.

Your due diligence is absolutely essential to protect workers and your company from these issues. If you cannot demonstrate sufficient and on-going examination of your supply chain and its workers, the penalties, both reputational and financial could be enormous. At The Shore Group, we have an extensive PQQ process, including checking the validity of documentation provided and conduct structured audits of our suppliers’ on-going obligations to HMRC. We also regularly meet all of our contractors, ensure that all workers are eligible to work in the UK and that they are being treated and paid ethically.

With the forthcoming changes to immigration legislation happening on 1st January 2021, we would expect the landscape in our labour market to change again – time will tell, but right now, your own due diligence is essential to ensure your supply chain is ethical and compliant. 

To discuss any of the issues here, please contact us on the details below:


Posted on

October 23, 2020