Why construction is likely to be heavily affected 

Construction businesses rely heavily on subcontracting. A developer appoints a Tier 1 Contractor. The Tier 1 Contractor appoints trade contractors. Those trade contractors may appoint labour-only subcontractors, small gangs, individual operatives or further subcontractors. By the time work is carried out on site, the business benefiting from the labour may be several contractual steps away from the individual doing the work.

This business model creates an obvious right to work risk. If Immigration Enforcement identifies an individual working illegally on site, the Home Office will investigate who engaged that person. It will also examine who brought them onto site, who carried out the the right to work checks, who supervised the work and how the contractual chain operated in practice.

The proposed code makes clear that the Home Office will still look first for the employer with the direct contractual relationship with the worker. However, the extended liability provisions are intended to prevent responsibility disappearing where that employer cannot be identified, where the supply chain is unclear, or where contractors have failed to put the required protections in place.

What is extended liability and why does it matter?

Will Tier 1 Contractors be liable for illegal working penalties?

Potentially, yes. The proposed rules do not appear to make Tier 1 Contractors automatically liable for every illegal worker found on a project. However, Tier 1 Contractors are likely to face much closer scrutiny because they often sit at the top of the construction labour chain and control the project environment.

A Tier 1 Contractor may face greater risk if it cannot identify who supplied a worker. The same applies if it cannot produce a clear subcontracting chain, has weak site access controls, allows unapproved subcontracting, fails to audit right to work compliance or relies only on generic contract clauses that are not followed in practice.

The message for Tier 1 Contractors is not that they must personally carry out every right to work check for every operative on site. The message is that they will need to be able to evidence a controlled labour supply chain. That means knowing who is on site, which company supplied them, whether that company was approved, whether right to work obligations were imposed contractually, whether audits were permitted, and whether identity verification controls were actually used.

How will Mid-Tier Contractors be affected?

Mid-Tier Contractors may face the most difficult practical position. They are often both suppliers and purchasers of labour. They may be accountable to a Tier 1 Contractor above them while also relying on smaller subcontractors, specialist trades, labour-only subcontractors or self-employed operatives below them.

This means Mid-Tier Contractors may need to manage risk in both directions. Upstream, they may be required to give stronger warranties, provide evidence of right to work compliance, accept audit rights and co-operate with Home Office investigations. Downstream, they will need to impose the same or equivalent obligations on any subcontractors they use.

The commercial pressure is likely to increase. Tier 1 Contractors may become more selective about which subcontractors they approve. Mid-Tier Contractors need reliable labour records, right to work assurance, identity checks and subcontracting controls. Without them, they may find it harder to win or retain work. 

What about Lower-Tier Contractors and self-employed individuals?

Lower-Tier Contractors and labour-only subcontractors are likely to come under much greater pressure. If they are the business or individual that directly engages the worker, they are likely to remain the first place the Home Office looks when illegal working is identified.

The proposed code also distinguishes between genuinely self-employed individuals operating in business on their own account and individuals who are effectively being supplied to perform work personally through an intermediary or contractual chain. That distinction may be important on construction projects, where some operatives are described as self-employed but in practice are expected to attend personally, follow site instructions and work as part of a wider project team.

Small subcontractors may therefore need more formal systems than they have used before. Informal arrangements, verbal agreements, last-minute substitutions and cash-in-hand working models are likely to become much higher risk.

Will the Home Office give every company in the supply chain a civil penalty?

Not necessarily. The proposed code suggests that the Home Office will look first for the employer with the direct contractual relationship with the worker. Extended liability is not presented as an automatic penalty for every company in the chain.

However, more than one party may be at risk depending on the facts. The Home Office may consider the nature of the contractual arrangements, whether the direct employer can be identified, whether the prescribed requirements were met, and whether each party can evidence the controls it was required to have in place.

In practical terms, the businesses most exposed are likely to be those that cannot explain the labour chain, cannot produce contracts, cannot show who approved subcontracting, cannot evidence right to work assurance, or cannot prove that the person on site was the same person who was checked.

How can a construction business stop illegal working if the workers are not its employees?

This is the question many contractors will ask. The answer is that the proposed regime is not only about who conducts the right to work check. It is also about whether the business has taken reasonable, evidenced and practical steps to control the labour chain.

In construction, that may include approved subcontractor lists, written consent before further subcontracting, contractual obligations requiring right to work checks, audit rights, clear record-keeping, site access controls, identity cards, induction records, daily attendance checks and processes to prevent unapproved substitution.

The aim is not to turn every Tier 1 Contractor into the direct employer of every operative. The aim is to make sure there is no gap in responsibility where nobody can show who was responsible, nobody can prove that checks were done, and nobody can confirm that the person on site was the person who had been cleared to work.

How can construction companies protect themselves?

• Review you labour supply chain: 
  Construction businesses should start preparing before the expanded regime comes fully into force. The most important step is to treat right to work compliance as a supply chain issue, not just an HR issue. The first step is to map the labour supply chain across each project, including subcontractors, labour-only providers, agencies and individual operatives.
  
  

• Strengthen contracts with subcontractors: 
  Update subcontractor agreements to include right to work obligations, audit rights, restrictions on further subcontracting and Home Office co-operation clauses.

• Improve site access and identity checks:
  Introduce site access processes that link each operative to an approved supplier and right to work assurance record. Use induction records, access passes and identity verification systems to confirm workers’ identities. 

• Carry out regular audits:
  Carry out risk-based audits of subcontractors and labour suppliers. Keep evidence in a format that can be produced quickly if the Home Office issues an information request.
  
  
• Train your teams:
  Train procurement, commercial, site management, HR and compliance teams so that the controls work in practice, not just on paper.

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