Employer’s liability insurance is a legal requirement for many businesses. If you don’t have it when you should, you could be fined a significant amount. Deciding whether it applies to you is essential before you start trading. It’s also worth remembering that your business insurance needs can change. That means you need to regularly reassess to make sure you stick to the law.
To help you to decide if you need to hold employer’s liability insurance, read our guide below.
What is employer’s liability insurance?
Employer’s liability insurance provides your company with financial protection if there is an accident involving you or one of your employees. It pays the legal costs involved if someone is injured, becomes ill, or if personal property is damaged by something connected with your business.
For example, if a member of staff slips and is injured at work they can sue the company. Your employer’s liability insurance will pay the legal costs to defend the case and any compensation that is awarded. It protects both you and anyone who works for you.
Who needs it?
If your business employs any members of staff, you probably will need to have the right employer’s liability insurance. This includes:
- Full-time employees.
- Any staff who work part-time.
- Temporary staff, including seasonal or casual workers.
- Students on a work placement.
- Apprentices.
- Volunteers
An employee can be defined as:
- Someone who has National Insurance contributions and income tax deducted from their salary.
- Someone who’s hours, location of work and conditions are controlled by you.
What about contractors?
If you hire contractors who are employed by another company, for example, a cleaner, insurance is normally covered by the other company. However, it’s wise to double-check with your insurance broker rather than assume this is the case as this can be a grey area. For example, if you hire a sub-contractor, who is using your tools and following your directions, you would be considered the employer, and you would need to have employer’s liability insurance.
Exceptions to the rule
There are some exceptions to the rule, which means you don’t always have to have employer’s liability insurance.
- If you employ family members in a family business that isn’t trading as a limited company then it isn’t necessary. Be aware though, that the family connections must be very close, for example, a parent or child, or you may still have to pay.
- You also don’t need employer’s liability insurance if you are the only employee of your company and own 50% or more of the company’s share capital. However, if you rely on your income to pay bills it is probably worth considering personal accident insurance in case you have an accident and cannot work.
- Other exceptions include certain health service bodies and public organisations. To be certain you are following the law, discuss it with your insurance broker. Never simply assume that you don’t need the cover.
What does the law say?
The law states that employer’s liability insurance needs to be sought from an approved insurer and has to have a premium of £5million as a minimum. The majority of policies go above and beyond this and offer £10million as their standard. It sounds like a huge figure, but it needs to be enough to cover lifelong care of employees if they are injured at work through no fault of their own.
What happens with no employer’s liability insurance?
Aside from breaking the law, not having employer’s liability insurance will affect the reputation of your business. It can also cost you a lot.
The Health and Safety Executive are responsible for enforcing the laws that relate to employer’s liability insurance and possible punishments include:
- A fine of up to £1,000 for not displaying your insurance certificate or refusing to make it available to inspectors.
- A fine of up to £2,500 per day for the time when you don’t have suitable cover.
When your business begins to take on employees or plans to do so from the offset then you must have employer’s liability insurance in place.
What is the best way to buy employer’s liability insurance?
You can purchase this insurance as a standalone policy or have it included in a larger policy covering other business essentials. For example, driving instructor insurance for driving schools will cover the fleet of vehicles as well as individuals employed by the school.
You can buy your employer’s liability insurance from an insurance company or use an insurance broker or buy it through a trade association. You must check that the insurance provider is an authorised insurer. It’s easy to check using the list from the Financial Conduct Authority.
It’s also a good idea to check that your insurance covers all the people that work for you, from full-time employees to volunteers. Speak directly to your insurance broker for advice.
How much will it cost?
The cost will depend on the number of employees and the type of business you run. For example, the risk of injury in a factory is higher than in an office, so premiums are likely to cost more. Other factors, such as if you have made any insurance claims, can also increase your premium.
Get expert advice
Don’t neglect buying employer’s liability insurance. If you do, it could cost you a lot more in the long run. To find the best value insurance, it can help to talk to an independent insurance broker, like Park Insurance. For 30 years, we’ve been helping businesses of all sizes. Our specialist teams have expert knowledge on a wide range of sectors, from taxi drivers to beauty salons and traders. We can advise you on the different types of insurance you might need. And we can save you money by letting you know what you don’t need. We’re one of the UK’s largest independent insurance brokers. We use our contacts and significant buying power to negotiate hard on your behalf. And that means you can rest assured you’ve got the right insurance at the best price. Call our team on 0117 955 68535 or get a free quote today.
This article was originally published in May 2014 but has since been completely updated to provide you with the best and most accurate information.