Running a business involves managing many different risks. Depending on what your company does, you may need insurance covering everything from your premises and equipment to public liability, cyber risks and professional responsibilities.
However, while many types of business insurance are optional, Employers’ Liability Insurance is different.
For most businesses that employ staff in Great Britain, Employers’ Liability Insurance is a legal requirement. If you become an employer, you will generally need appropriate cover in place from the point you begin employing people.
But what exactly does Employers’ Liability Insurance cover, how much protection do you need and are there any exceptions?
Here, we explain what business owners need to know.
What Is Employers’ Liability Insurance?
Employers’ Liability Insurance is designed to protect a business if an employee becomes injured or ill because of the work they carry out for the employer.
Even businesses with excellent health and safety procedures can experience workplace accidents.
An employee could fall from a ladder, injure themselves while operating machinery, develop a condition associated with their working environment or suffer an injury while carrying out their normal duties.
If the employer is legally liable, the employee may be entitled to compensation.
Employers’ Liability Insurance helps protect the business against the financial consequences of eligible claims, including compensation and certain associated legal costs, subject to the terms of the policy.
Is Employers’ Liability Insurance a Legal Requirement?
In most cases, yes.
If you become an employer in Great Britain, you will normally be legally required to have Employers’ Liability Insurance from an authorised insurer, with cover of at least £5 million.
This applies regardless of whether you consider your workplace particularly dangerous.
An office employing a small administrative team may present very different risks from a construction company, engineering business or manufacturer, but the requirement for Employers’ Liability Insurance can still apply.
There are some exemptions, which we cover later in this guide.
What Happens If You Do Not Have Employers’ Liability Insurance?
Failing to arrange compulsory Employers’ Liability Insurance can have serious financial consequences.
A business can be fined up to £2,500 for every day that it is not properly insured.
That means operating without the appropriate insurance is not simply a case of risking the cost of a future compensation claim. The absence of the insurance itself can result in substantial penalties.
Businesses should therefore arrange suitable cover as soon as they become an employer rather than waiting until their operation grows or an employee begins carrying out higher-risk duties.
How Much Employers’ Liability Cover Do You Need?
The legal minimum is generally £5 million of Employers’ Liability Insurance from an authorised insurer.
In practice, many commercial insurance policies provide £10 million of cover as standard.
The appropriate policy for your business will depend on your circumstances, including the type of work your employees undertake and the risks associated with their jobs.
Factors an insurer may consider include:
- The Nature of Your Business
- The Number of Employees
- The Work Employees Undertake
- Your Annual Wage Roll
- Your Health and Safety Procedures
- Your Previous Claims History
- Whether Employees Work With Machinery or Hazardous Materials
- Whether Employees Work at Height or in Other Higher-risk Environments
Businesses carrying out higher-risk activities may require considerably more assessment than a business whose employees primarily undertake office-based work.
Who Counts as an Employee for Employers’ Liability Insurance?
Determining who needs to be covered is not always as straightforward as checking your payroll.
Whether somebody needs to be included can depend on the relationship between that individual and your business.
Permanent and part-time employees will normally need to be considered, but Employers’ Liability Insurance can also be relevant to other people working for you.
These could include:
- Temporary Employees
- Seasonal Workers
- Apprentices
- Trainees
- Work Experience Staff
- Certain Casual Workers
- Some Contractors and Subcontractors
The fact that somebody describes themselves as “self-employed” does not necessarily determine how they will be treated for insurance purposes.
The nature of the working relationship can be important.
For example, relevant considerations could include whether your business controls when, where and how the person works, whether you provide their tools and equipment and whether they can arrange for somebody else to complete the work.
If you regularly use freelancers, contractors or subcontractors, discuss these arrangements with your insurance provider rather than assuming they fall outside your Employers’ Liability policy.
Does Employers’ Liability Insurance Cover Volunteers?
Volunteers can make the situation more complicated.
Businesses and organisations remain responsible for the health and safety of volunteers, but whether an individual needs to be treated as an employee for Employers’ Liability Insurance purposes can depend on the nature of the arrangement.
If your organisation uses volunteers, unpaid workers, interns or work experience students, make sure your insurer knows.
Do not assume somebody falls outside the scope of your insurance simply because they are not receiving a conventional salary.
What Does Employers’ Liability Insurance Cover?
Employers’ Liability Insurance is primarily concerned with claims relating to injury or illness caused by an employee’s work.
For example, an employee might make a claim after:
- Falling From Faulty Work Equipment
- Being Injured by Machinery
- Suffering an Injury While Lifting Heavy Objects
- Developing an Illness Associated With Workplace Exposure
- Being Injured Because of Unsafe Working Conditions
- Experiencing a Work-related Accident Away From Your Main Premises
Whether a particular incident is covered will depend on the circumstances, your legal liability and the terms and conditions of your insurance policy.
Employers’ Liability Insurance does not remove your responsibility to maintain a safe workplace. Businesses must still comply with relevant health and safety legislation and take reasonable precautions to protect employees.
Can Former Employees Make a Claim?
Yes, claims do not necessarily arise while somebody is still working for you.
Some work-related illnesses can take years to become apparent.
An individual could therefore make a claim after leaving your business if they allege that an injury or illness was caused by work undertaken while they were employed by you.
This is one reason why maintaining accurate records of previous Employers’ Liability Insurance policies is important.
Businesses should retain information that allows previous insurers and policy periods to be identified if a claim arises many years later.
Are Family Businesses Exempt From Employers’ Liability Insurance?
There are exemptions relating to certain family businesses, but the rules should not be interpreted as meaning that every family-run company is automatically exempt.
GOV.UK states that Employers’ Liability Insurance may not be required where an employer only employs qualifying family members.
However, the circumstances and structure of the business matter.
For example, businesses operating through incorporated companies should not simply assume the family-member exemption applies.
Similarly, once a business employs somebody who is not covered by an exemption, Employers’ Liability Insurance may become compulsory.
If you employ family members and are uncertain whether you need cover, discuss your circumstances with an insurance adviser before deciding not to arrange insurance.
The potential financial consequences of incorrectly assuming you are exempt can be substantial.
What Is an Employers’ Liability Certificate?
When Employers’ Liability Insurance is arranged, your insurer will provide an Employers’ Liability Certificate.
This confirms that appropriate insurance is in place.
Employers are required to make the certificate available to employees. This may be done electronically, for example through a company intranet or website, provided employees can access it.
You must also be able to show the certificate to an inspector when requested.
Failing to display or produce an Employers’ Liability Certificate when required can result in a fine of up to £1,000.
Make sure your certificate remains accessible and is updated whenever your policy is renewed or changed.
Employers’ Liability vs Public Liability Insurance
Employers’ Liability and public liability insurance are sometimes confused, but they protect against different types of risk.
Employers’ Liability Insurance primarily relates to claims from employees who are injured or become ill because of their work.
Public liability insurance is designed to protect against certain claims involving third parties, such as customers, visitors or members of the public who suffer injury or property damage in connection with your business activities.
For example, if an employee falls from defective work equipment and is injured, that could potentially involve Employers’ Liability Insurance.
If a customer visits your premises, slips because of a hazard and makes a claim against your business, that could potentially fall under public liability insurance.
A business may therefore need both forms of cover.
Employers’ Liability Insurance does not replace public liability insurance, and public liability insurance does not normally satisfy your legal obligations as an employer.
Does a Sole Trader Need Employers’ Liability Insurance?
A sole trader who works entirely alone and does not employ anybody will generally not need Employers’ Liability Insurance.
That can change as soon as the business starts taking on employees.
A sole trader may also need to consider their position carefully when taking on apprentices, temporary staff or other workers.
If your business has grown beyond being a genuine one-person operation, it is worth reviewing your insurance arrangements.
Do Limited Companies Need Employers’ Liability Insurance?
Whether a limited company requires Employers’ Liability Insurance will depend on who works for the business and their relationship with the company.
A company employing members of staff will generally require appropriate cover unless a specific exemption applies.
The position can be different for businesses with only a director or directors and no other employees, depending on the company’s structure and circumstances.
Rather than relying solely on job titles, speak to your insurance adviser about how your company operates and who works within it.
Is Employers’ Liability Insurance Tax Deductible?
Business insurance premiums incurred wholly and exclusively for business purposes will generally be considered a business expense for tax purposes.
However, individual circumstances can vary, so businesses should seek appropriate accounting or tax advice where necessary.
What Information Will You Need for an Employers’ Liability Quote?
When arranging Employers’ Liability Insurance, providing accurate information helps your insurer understand the level of risk.
You may be asked about:
- Your Business Activities
- Number of Employees
- Annual Wage Roll
- Employee Roles
- Work Locations
- Use of Machinery
- Work at Height
- Manual Handling
- Hazardous Materials
- Subcontractors
- Previous Claims
- Health and Safety Procedures
Make sure you explain all significant activities undertaken by your employees.
If your business changes after taking out the policy – for example, you increase your workforce or start undertaking substantially different work – speak to your insurer or broker to establish whether your cover needs updating.
Why Employers’ Liability Insurance Matters
The legal requirement alone makes Employers’ Liability Insurance essential for most businesses with employees.
However, its importance goes beyond avoiding fines.
A serious workplace injury or occupational illness can result in a substantial compensation claim. Without appropriate insurance, meeting those costs could place considerable financial pressure on a business.
Employers’ Liability Insurance provides an important layer of financial protection while helping employers satisfy their legal insurance obligations.
It should form part of a wider approach that includes good health and safety procedures, appropriate employee training, risk assessments and suitable workplace controls.
Looking for Employers’ Liability Insurance?
Every business is different, and the risks faced by employees can vary substantially between industries.
At West Craven Insurance, we can help you assess your business requirements and arrange suitable Employers’ Liability Insurance based on your workforce and the activities you undertake.
Whether you run a small business taking on its first employee or an established company with a growing workforce, suitable Employers’ Liability Insurance can help protect your business against claims while ensuring you meet your insurance responsibilities.
Speak to West Craven Insurance today to discuss your requirements and obtain a quote for Employers’ Liability Insurance.
