A subcontractor must register as an employer with the Compensation Fund and pay assessments for its own employees. Where it fails to, that subcontractor's employees are deemed to be the employees of the contractor who appointed it — which means the injury claim, the assessment and the exposure become yours. Obtain proof of registration and a current Letter of Good Standing before any subcontractor starts work.
You can do everything correctly and still inherit somebody else's workforce. This is the mechanism.
How does someone else's employee become mine?
Through a deeming provision, and deeming provisions do not care what your contract says.
The Compensation for Occupational Injuries and Diseases Act requires every employer to register with the Compensation Fund and pay assessments based on employee earnings. Where a subcontractor has not done so, the Act treats that subcontractor's employees as employees of the contractor who engaged it.
This is not a contractual risk you can allocate away. A clause in your subcontract saying the subcontractor is responsible for its own COIDA obligations is worth having — it gives you a claim against them — but it does not change the statutory position between you and the injured worker. The employee's remedy runs to the deemed employer. That is you.
Nor does it depend on fault. You do not have to have known. You do not have to have been careless. The subcontractor was unregistered, so their people are treated as yours.
What does this actually cost when it goes wrong?
Four things, in roughly the order they arrive.
The claim. An injured worker's compensation becomes your fund's problem — and where you are also not properly covered for them, your problem directly.
Loss of the COIDA shield. The Compensation Fund exists so that an injured employee is compensated without suing their employer. That protection depends on being registered and in good standing for the employees concerned. A contractor carrying deemed employees it never declared may find itself outside that protection, facing a common-law claim.
Retrospective assessments. Earnings that should have been declared, were not. The Fund can assess for them, with penalties.
Your own Letter of Good Standing. A disputed or unpaid assessment holds it up — and an expired letter disqualifies tender bids. This is how a subcontractor's paperwork failure ends up costing you a contract eighteen months later. See what happens when your Letter of Good Standing expires.
What do I have to check, and when?
Before they set foot on site. Not after appointment, not after the first payment certificate, not when something happens.
| Check | What you need | Why |
|---|---|---|
| Registered with the Compensation Fund | Registration number and proof | The registration itself |
| Current Letter of Good Standing | The letter, unexpired | Confirms ROE filed and assessment paid |
| Expiry date recorded | Diarised | It lapses annually and silently |
| Re-check on renewal | A fresh letter each year | A letter valid at appointment may be expired by month eight |
| Their own subcontractors | Ask the question | The chain runs downward and so does the deeming |
The last row is the one people miss. If your subcontractor engages its own subcontractor who is unregistered, the deeming works down the chain. Ask what they are subcontracting, and require the same standard of them that you apply.
A long contract needs re-checking. A letter that was valid in February is expired by the following February, and the project is still running. Build the re-check into the contract administration rather than relying on anyone to volunteer it.
What should the subcontract itself say?
The statutory position cannot be contracted out of, but the contract still does real work.
Require registration and a current letter as a condition precedent to commencing work — not a warranty given later, but something that must exist before mobilisation.
Require the letter to be maintained for the duration, with a fresh copy on each renewal.
Make provision for payment to be withheld where the letter lapses. This is the only mechanism that reliably produces the document, because a subcontractor who is not being paid will find its paperwork.
Include an indemnity for losses arising from their non-compliance. It does not protect you from the injured employee, but it gives you recourse against the subcontractor.
Require notification of any incident, immediately. Late-reported accidents are one of the four things that hold up a Letter of Good Standing.
Have the subcontract drafted or reviewed by an attorney. This is legal work, the amounts involved are usually significant, and a template that has been passed around the industry may not do what you think it does.
Are they even a subcontractor?
Ask this before the COIDA question, because it is prior to it.
A "subcontractor" who works only for you, on your site, on your hours, under your supervision, using your materials and your plant, is quite possibly your employee in substance — regardless of what the agreement says or what the invoice looks like.
If they are your employee, then so are the people working under them, and the whole question of their COIDA registration falls away because the obligation was always yours.
SARS applies the same substance-over-form test for PAYE, and the exposure there is unpaid employees' tax with penalties and interest. The two risks travel together — a labour-only "subcontractor" is usually a problem for both. See independent contractor or employee.
Genuine subcontracting looks different: their own workforce, their own plant, their own method, multiple clients, their own risk on the outcome, and a price for a defined scope rather than a rate for hours.
What does good practice look like day to day?
A single subcontractor compliance register, maintained by someone whose job it is:
| Subcontractor | COIDA reg no. | LOGS expiry | Tax status | Their subs? | Re-checked |
|---|---|---|---|---|---|
Copies held centrally, not in the project manager's email.
A calendar entry per expiry, one month before.
Payment certification linked to it — the compliance check happens before the certificate is signed, not as a separate exercise nobody owns.
And keep your own house in order too, because you are somebody else's subcontractor on another project, and they are running the same check on you. See COIDA registration explained and construction payroll and compliance.
Frequently asked questions
What happens if my subcontractor is not registered for COIDA? That subcontractor's employees are deemed to be your employees for COIDA purposes. The claim, the retrospective assessment and the exposure become yours, regardless of what your subcontract says.
Can I contract out of subcontractor COIDA liability? No. A clause making the subcontractor responsible gives you recourse against them, but it does not change the statutory position between you and the injured worker. The deeming provision applies regardless.
What must I obtain from a subcontractor before they start? Proof of registration with the Compensation Fund and a current, unexpired Letter of Good Standing — before they mobilise, not after appointment.
Do I need to re-check during a long project? Yes. A Letter of Good Standing lapses annually. One that was valid at appointment may have expired by month eight of the contract, while the work continues.
Does this apply to my subcontractor's subcontractors? Effectively yes — the deeming works down the chain. Ask what your subcontractor is subcontracting and require the same standard of them.
How do I actually get a subcontractor to produce the letter? Make it a condition precedent to starting work and provide for payment to be withheld while it is outstanding. A subcontractor who is not being paid finds its paperwork.
What if my "subcontractor" is really an employee? Then the obligation was always yours and the question of their registration falls away. A person working only for you, on your site, on your hours, under your supervision with your materials is likely an employee in substance — which also creates PAYE exposure with SARS.
Is there any size below which COIDA does not apply? No. There is no minimum turnover, no minimum hours and no exemption for part-time or casual work.
Check it before they reach site
The cost of this check is a phone call and a filed copy. The cost of skipping it is an injured worker you never employed, an assessment you never budgeted for, and a Letter of Good Standing held up in the month you needed it for a bid.
Smartbook keeps contractors' COIDA obligations current — Returns of Earnings filed on time, Letters of Good Standing renewed before they lapse, and a compliance register that tracks your subcontractors' expiry dates alongside your own.
Get a Letter of Good Standing — R1,750 →
See monthly accounting plans →
Last reviewed: 13 August 2026. Written by the Smartbook team — SAIPA and SAICA accredited, SARS registered tax practitioners. Subcontract drafting is legal work — have agreements prepared or reviewed by an attorney. General guidance, not legal advice.
Primary sources: Compensation for Occupational Injuries and Diseases Act 130 of 1993 · Compensation Fund, Department of Employment and Labour · SARS