As a business owner, you’ve probably asked yourself, “Do I need employer’s liability insurance?” Insurance cover offers an invaluable safety net for businesses of all sizes, but not all types of insurance are compulsory. Thanks to the Employer’s Liability (Compulsory Insurance) Act 1969, most companies with employees require a minimum of £5 million of employer’s liability insurance cover. There are exemptions and in our comprehensive guide, you will find everything you need to know about this essential insurance cover.
What is employer’s liability insurance?
When you employ staff, you have to carefully manage their health and safety, and there are Acts of Parliament that legislate for this process. The Employer’s Liability Act of 1969 was built upon legislation dating back to 1880. It made employer’s liability insurance a legal requirement for most businesses to safeguard the rights of all their employees, whether part-time or full-time.
This type of insurance comes into play when an employee makes a claim against their employer for illness or injury attributable to their employment. Essentially, it streamlines the compensation process and ultimately benefits both parties. The employee can be fairly financially compensated, and the employer avoids personally shouldering the costs of a financial claim.
What does employer’s liability insurance cover?
Accidents can occur in any workplace, from a trip and fall over a cable to a more serious industrial accident. Employer’s liability insurance covers claims made by your employees for injuries that occur during their employment (including accidents away from your business premises, depending on the nature of the job). It is also used to cover claims for illnesses caused by working for the company, for example, if they fall ill with a lung condition having failed to be provided with the correct personal protective equipment.
This insurance will cover the compensation figure along with your own legal fees for dealing with the claim.
Is employer’s liability compulsory?
As a business owner, you may have also asked, “Is employer’s liability insurance compulsory?” For the majority of businesses, the answer is a definite yes. The 1969 Employer’s Liability Act stipulates that:
- Businesses, groups, or individuals who employ staff should hold up to £5 million of employer’s liability cover.
- You must obtain insurance from an FCA-registered insurer.
- You must retain your Employer’s Liability Certificate, display it where your employees can see it, or send out an electronic version. This should be done with each annual policy renewal.
If you don’t take out employer’s liability insurance, you can be fined £2,500 for each day your business is operated without cover. You could also be fined £1,000 for failing to present your current insurance certificate to the HSE upon their request.
Do you need employer’s liability insurance? Questions to ask yourself
If you pay someone to work within your business, there is nothing to stop you from taking out employer’s liability insurance for financial protection, even if your business is exempt. But if you’re trying to establish whether you need this cover by law, there are several questions you can ask yourself.
Do I need an employer’s liability insurance as a sole trader?
If you are the only person working within your business, you don’t need this type of insurance. However, it’s important to be careful. If you sometimes – no matter how rarely – pay someone else to do work for you, they could be classed as an employee, meaning you do need to take out an employer’s liability policy.
What is the definition of an employee?
If you need to work out whether someone you pay could be classed as an employee, read through the following definitions of an employee for guidance:
- You deduct insurance and income tax from their earnings before you pay them
- They only work for you
- They cannot employ a substitute if they’re unable to work for you
- You control their work schedule
- You supply most of their work equipment
- They do the same work under the same conditions as the people you class as employees
Do all limited companies need employer’s liability insurance?
Limited or not, if you’re the only person working within the company you own, then no, you do not need employer’s liability cover. But, if you employ staff, even on a part-time basis, it becomes compulsory.
I hire contractors and subcontractors. Do I need the employer’s liability insurance?
Commonly, if the contractors your business hires do not work for you exclusively, you won’t need this cover (though if you employ other types of workers, you may need it to cover them). Sometimes you will need this cover if you hire subcontractors, notably when they work under your direction and using materials and equipment you provide.
Do I need employer’s liability cover for my apprentice?
Regardless of the scheme they are working under and whether or not they benefit financially from your apprenticeship, you will need employer’s liability insurance if an apprentice works within your business.
I hire volunteers or temporary workers – do I need this cover?
In most circumstances, even though you aren’t paying them, you still need liability insurance for volunteers to protect their health and safety rights.
Temporary employees are very common in certain industries, and even if you hire them only a few times a year or for one annual event, you still need insurance cover.
Where do I stand if I employ family members?
You are exempt from taking out employer’s liability insurance if the only staff you pay are immediate family members: your spouse or civil partner, your children, your siblings (including half-siblings), your step-children or step-siblings, your parents, and your grandparents.
There is an important exception to this rule. If you run a limited company, even if your only employees are immediate family members, you will still need to take out employer’s liability insurance.
Is my business exempt from employer’s liability cover?
There are a few businesses which are exempt from holding this cover, including:
- Sole traders (with no employees)
- Family-run businesses (if they are not a limited company)
- Health service bodies
- Public organisations
- Specific organisations that run on public funds
So, for most small business owners in the UK, you must take out this cover if you hire staff.
How much employer’s liability cover do I need?
The law stipulates that you must take out a minimum of £5 million in cover, but you are free to take out more. You can discuss the most suitable level with your insurer. If your employees work in a higher-risk environment, you may be advised to take out up to £10 million in employer’s liability cover. Remember, the more cover you take out, the higher your premium will be.
Frequently Asked Questions
How much does employer’s liability cost?
Several factors will affect the cost of your premium, including:
– the number of staff you employ,
– the level of risk associated with your business,
– and the level of cover you take out.
An office-based business with a couple of employees will pay less than a building contractor with 50 staff.
Policies can start at just a few pounds per month, but it’s important to discuss your unique business needs with your insurer to ensure you take out the appropriate level of cover.
Would my public liability insurance cover employees?
No. It’s very important to note that you could not use your public liability to cover the compensation and legal fees associated with an employee claim for illness or injury.
Get in touch with Park Insurance today to find out how we can support your small business with essential cover like employer’s liability insurance. With over three decades of experience working with the country’s entrepreneurs, we’re well-placed to guide you through all your unique insurance needs.