Relationship Between Contractor and Subcontractor: Why Employment Status Still Matters
- William Slivinsky
- 13 hours ago
- 8 min read
The relationship between a contractor and subcontractor often works well for years.
The contractor needs reliable labour.
The subcontractor wants regular work.
The job gets done.
Invoices are paid.
Everyone moves on.
In that situation, nobody usually argues about employment status. Nobody asks whether the subcontractor is really self-employed, a worker, or something in between.
The paperwork sits in the background, CIS deductions are made, and both sides get on with the work.
The problem usually starts when something goes wrong.
An invoice is not paid.
A pay less notice is issued.
Someone becomes ill.
There is a disagreement about quality of work.
A final payment is reduced.
A long working relationship suddenly breaks down.
That is when a relationship that looked simple can enter a very expensive battlefield.
I advise both self-employed individuals and businesses that rely on self-employed workers, subcontractors, drivers, tradespeople, and flexible labour.
My legal experience is simple: a good business can wrongly label its workers for years and never face a claim if the people doing the work are happy, paid properly, and treated fairly.
But when a dispute starts, the label becomes important.
The business says: “You were self-employed.”
The subcontractor says: “I worked for you personally, I followed your instructions, and I depended on you for work.”
That is when the real legal question begins.
It is not enough to ask whether the person was called self-employed. It is not enough to ask whether they were CIS-registered. It is not enough to ask whether they sent invoices.
The better question is this:
Was the subcontractor genuinely running their own independent business, or were they personally working as part of the contractor’s business?
The relationship between contractor and subcontractor matters for both sides.
For the subcontractor, it can decide whether they have rights to holiday pay, protection from deductions, written terms, and other employment law protections.
For the business, it can decide whether a simple payment dispute becomes a much more expensive employment tribunal claim.
That is why this issue should not be left until the relationship has already broken down.
Below, I explain how tribunals look at contractor and subcontractor relationships in practice, and why the real working arrangement often matters more than the paperwork. One important consideration now is this: if you are reading it now, no matter if you are a business relying on a self-employed fleet or a self-employed person, an issue arose and you decided to search for "Relationship Between Contractor and Subcontractor." This is what I have just said: good treatment and sound operations do not ask questions.
When the relationship breaks down, the label is tested
Most contractor and subcontractor relationships are never tested while things are going well.
The subcontractor gets work.
The contractor gets labour.
Invoices are paid.
Nobody asks too many questions.
The problem usually starts when something changes. I have been engaged in cases of best friends and family members, so it is not only the commercial area.
There is usually a trigger such as:
A pay less notice is issued.
A final invoice is reduced.
A subcontractor becomes ill.
Holiday pay is requested.
Work suddenly stops.
A deduction is made from wages or pay.
That is when both sides begin looking back at the relationship.
The business says: “You were self-employed.”
The subcontractor says: “I worked for you personally, followed your instructions, and relied on you for work.”
At that point, the tribunal is not interested only in the label.
It looks at the reality of the relationship.
Related guidance before we go further
If you are reading this as a subcontractor or self-employed contractor and want to understand your own rights, you may find this article helpful:
If you are reading this as a business that relies on subcontractors, self-employed workers, CIS arrangements, or contract templates, you may also want to read:
These issues are connected. A contract can help, but only if it reflects the reality of the working relationship.
Section 230 ERA 1996: the question many businesses miss
Under section 230 of the Employment Rights Act 1996, a person can be a worker even if they are not an employee.
This is sometimes called limb (b) worker status.
In simple terms, a person is a worker if they personally perform work or services for someone else, unless that other party is genuinely their client or customer.
This is where many contractor and subcontractor relationships are misunderstood.
A business may focus on the wrong question.
It may ask:
“Was he self-employed?”
But that is not always the decisive question.
The more important question is:
Was he genuinely running a business of his own, and was the contractor his client or customer?
That is a very different question.
A person can be self-employed for tax purposes and still be a worker in employment law. CIS registration can sit alongside worker rights. Invoices can sit alongside worker rights. A subcontractor label can sit alongside worker rights.
The law looks at the real relationship.
What happened in Nowotnik v Cedar Construction Services Ltd
In Mr M Nowotnik v Cedar Construction Services Ltd, I represented the claimant.
The claimant was described as a subcontractor. He was CIS-registered. He submitted his own tax return. He was not paid holiday pay or sick pay. He was not guaranteed work every day.
On the surface, many businesses would look at those facts and say:
“This is self-employment.”
But the Employment Tribunal found that he was a worker.
The judgment is useful because it shows the difference between a paper relationship and the real working relationship.
The full judgment can be found here:
The substitution clause problem
Many businesses rely on substitution clauses.
The logic is simple: if the subcontractor can send someone else, then they are not required to do the work personally. If there is no personal service, there is no worker status.
That is the theory.
But the tribunal will look at whether the right is real.
In Nowotnik, there was discussion about whether the claimant could send a substitute. When the evidence was tested, the position was not that simple. The tribunal did not treat it as a genuine right to send someone else to perform the work. It was closer to the claimant being able to suggest someone who might help the respondent if needed.
That is a very different thing.
A real right of substitution means the subcontractor can genuinely send another person to do the work. A weak or artificial substitution clause does not protect the business if, in practice, the contractor expects that individual to attend and work personally.
This matters because many businesses believe a substitution clause is enough to stop someone being a worker.
It is not.
The clause has to match reality.
The real question: are you in business on your own account?
One of the most important points in Nowotnik was that the case was not simply about whether the claimant was self-employed.
The tribunal looked at whether the claimant was carrying on a business of his own and whether the respondent was his client or customer.
That is where many cases turn.
A subcontractor is not automatically running a business just because they are paid gross or through CIS. A person is not automatically a business just because they submit invoices. A person is not automatically independent just because the contract says so.
The tribunal looks at real business independence.
Do you have your own clients?Do you advertise your services?Do you price the job yourself?Do you carry real financial risk?Do you provide your own labour structure?Do you decide how the work is done?Do you have the freedom and reality of running your own business?
Or are you mainly turning up, doing the work personally, following the contractor’s programme, and relying on that contractor for income?
That difference matters.
In Nowotnik, the tribunal found no real evidence of a wider business. The claimant was doing the same type of work he would have done if the respondent had used an employment model instead of a subcontracting model.
That is powerful.
It shows that changing the label does not always change the legal reality.
Five practical lessons from the judgment
1. CIS registration is not the answer
CIS is about tax. It does not decide employment status.
A subcontractor can be CIS-registered and still have worker rights.
This is one of the biggest misunderstandings in the construction industry. Businesses often believe CIS protects them. Subcontractors often believe CIS removes their rights.
Both can be wrong.
2. No guaranteed work does not end the issue
A contractor may not be required to offer work every day. A subcontractor may not be required to accept every job.
That does not end the worker-status question.
If work is offered, accepted, performed personally, and paid for, the tribunal can still find a contract for that period of work.
The absence of guaranteed future work does not mean there are no rights during the work actually performed.
3. Invoices do not prove independence
Invoices are useful evidence, but they are not magic.
A subcontractor may send invoices because that is how the contractor wants to process payment. That does not prove the subcontractor is genuinely operating an independent business.
If the person depends on one contractor for income, works under that contractor’s organisation, and is paid mainly for personal labour, the invoice does not decide the issue.
4. Substitution must be genuine
A substitution clause has to work in real life.
If the subcontractor can only suggest someone, or if the contractor still decides whether that person can work, or if the arrangement never realistically allowed substitution, the clause may carry little weight.
A business should not assume that a copied substitution clause will protect it.
A subcontractor should not assume that a substitution clause means they have no rights.
5. Integration into the business matters
If the subcontractor works as part of the contractor’s team, follows the contractor’s site programme, uses the contractor’s materials or organisation, and fits into the contractor’s business, that can support worker status.
A genuine independent subcontractor usually operates at arm’s length.
A worker is different.
A worker is personally providing labour as part of someone else’s business.
When a pay less notice becomes something bigger
Employment status also matters because it can change the whole direction of a payment dispute.
In another case where I represented the claimant, Mr Robert Radosz, the dispute involved a pay less notice and a reduction of approximately £2,200 against the subcontractor.
On paper, the business treated it as a subcontractor payment issue.
But once the working relationship was challenged, the position changed.
The Employment Tribunal awarded the claimant more than £4,000, including sums connected with unauthorised deductions from wages, holiday pay, and failure to provide written particulars.
The award judgment can be found here:
That is why these disputes become expensive.
What starts as a withheld invoice or pay less notice can become an employment tribunal claim. The business believes it is dealing with a commercial subcontractor dispute. The worker argues that the deduction is unlawful because they had worker rights.
At that point, the paperwork is no longer enough.
The tribunal looks at the relationship.
A practical warning for businesses and hope for subcontractors
This article is not written to blame businesses.
Many businesses rely on self-employed workers honestly. They use CIS because that is normal in their industry. They use templates because they believe the wording is enough. They take advice, but sometimes the advice focuses too much on paperwork and not enough on how the relationship actually works day to day.
The problem is that employment status is not only a document exercise.
It is a reality exercise.
For subcontractors, this means you should not assume you have no rights just because you are called self-employed.
For businesses, this means you should not assume your contracts protect you just because they say “self-employed”, “subcontractor”, or “right of substitution”.
The safest approach is to look at the working relationship before there is a dispute.
Because when everyone is happy, the label may never be tested.
When the relationship breaks down, the label is often the first thing the tribunal is asked to look behind.
Need advice about a contractor or subcontractor relationship?
If you are a subcontractor, you may need advice because a deduction, unpaid bill, missing holiday pay, or final payment dispute may involve more than contract law.
If you are a business, you may need advice because a subcontractor arrangement that looks safe on paper can create risk when the relationship is tested.
I advise both sides with a practical focus on the real working relationship, not just the wording of the contract.
For clear advice, contact me here:
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