If you’re a small business owner looking to take on your first employee, congratulations! This is a significant step in growing your business and demonstrates that you have successfully run your startup.
Before hiring an employee, you must understand the associated laws and regulations, such as workplace health and safety, registering as an employer, and the necessary business insurance policies.
As mentioned in The Employers' Liability (Compulsory Insurance) Act 1969, Employers’ Liability Insurance is designed to cover the costs if an employee claims compensation for illness or injury that they believe has been caused by their work.
This article answers some important questions related to Employers’ Liability Insurance, a policy you’re legally required to have as soon as you become an employer.
Why do I need Employers’ Liability Insurance?
Employer’s liability insurance covers the compensation paid to an employee who successfully brings a personal injury claim following a work-related injury. These can include accidents at work or becoming unwell due to an industrial disease.
The policy you take out must come from an authorised insurer and amount to a minimum of £5 million.
What does the Employers’ Liability Insurance cover?
Accidents can still happen regardless of how strict you’re about your health and safety compliance. Employers’ Liability Insurance will protect you if your employee suffers a workplace injury and you’re found liable for negligence in a personal injury claim.
If an employee is successful in a compensation claim, your Employer Liability Insurance will cover up to the amount you’re insured. Most businesses are required to have a minimum of £5 million cover. However, you can insure your organisation for more to cover things such as:
- Medical fees
- Legal costs (for both you and the claimant)
- Loss of income
- Any other damages awarded by the court
Depending on your policy, you’ll be covered against legal claims brought by:
- Full-time and part-time employees
- Self-employed contractors you hire
- Temporary staff
- Interns
- Apprentices and volunteers
- Work experience placements
As your business grows and you take on interns or accept students on work experience placements, you must check whether you need to buy additional cover or whether your existing policy can cover them.
Do I need Employers’ Liability Insurance for subcontractors?
Self-employed contractors are unlikely to be covered under their client's Employers'
Liability insurance.
However, contractors who are recognised as employees of an organisation will be covered by that organisation's Employers' Liability Insurance.
What should I consider when purchasing Employers’ Liability Insurance?
Take the time to consider the risks that could expose you to employer liability and the extent of the insurance coverage you’ll require.
Be completely honest with your broker or the insurance company. Any false information you provide could render your policy null and void.
When you receive your policy, make sure you read it.
It can happen that the small print on the insurance policy was not read initially, and when you need to rely on it, you’re not covered.
Create a detailed health and safety risk assessment.
You have a legal obligation under the Health and Safety at Work Act 1974 to ensure those affected by your work practices, including members of the public and employees, are kept safe and healthy.
Your risk management assessment should provide the framework for health and safety policies and procedures that minimise the risks identified, thereby reducing the chances of employee claims.
This is regulated by the Health and Safety Executive (HSE), Britain's national regulator for workplace health and safety, that prevents work-related death, injury and ill health.
Put your Employers’ Liability Insurance certificate on display, so all your employees know you have a cover.
Staff members should also understand how to access details of the policy.
Is Employers’ Liability Insurance the same as Public Liability insurance?
No, Public Liability Insurance covers your business if you’re found liable for negligence following an event where someone, such as a customer or member of the public, has been injured or damage is caused to property owned by another person.
The principle difference between Public Liability Insurance and Employer Liability Insurance is that the former covers risks of injury or damage to the public. At the same time, the latter is designed for employees.
Do I need Employers’ Liability Insurance for a limited company?
Yes, if the company has more than one director and/or one or more employees. This applies even if your staff are close family members.
Do you need Employers' Liability Insurance for family members?
Sole traders who have a family business and employ only an immediate family member, such as a spouse or sibling, don’t need Employers’ Liability Insurance.
However, as mentioned above, if the company count on more than one director and/or one or more employees, you’ll need Employers' Liability Insurance even if your staff are close family members.
Do I need Employers’ Liability Insurance for contractors and freelancers?
If the Health and Safety Executive deem that a person doing work for you is an employee, you must have Employers’ Liability Insurance.
The line between an independent contractor and an employee is very thin. If you’re in doubt and need professional advice, you can book a free 15 minute consultation with one of our lawyers.
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What is the penalty for not having Employers’ Liability Insurance?
Failure to have Employer’s Liability insurance can result in a fine of £2,500 every day you don’t carry the proper insurance.
Who is exempt from Employers' Liability Insurance?
If you own a company and are the sole shareholder and appointed director of that company (who owns over 50% of the shares and has no other employees), in this case, you don’t need Employers' Liability Insurance.
How can I get Employers’ Liability Insurance?
The two main ways to obtain Employers’ Liability Insurance are to work with an insurance broker or approach an insurer directly.
When you work with a broker, they’ll have the necessary experience to assist you with understanding the breadth of cover you need and the inside knowledge of the best deals to fit your business circumstances.
Get legal assistance from LawBite
If you’re unsure whether your business needs Employers’ Liability Insurance, it’s best to seek legal advice. LawBite has experience helping startups and small businesses to achieve their commercial ambitions and regulatory compliance.
To find out how we can support you concerning business insurance matters and regulatory compliance, book a free 15-minute consultation or call us on 020 3808 8314.
Additional resources
- What is Before The Event (BTE) insurance?
- Public Liability Insurance - what you need to know
- What is Professional Indemnity Insurance (PII)?
- What is Business Interruption Insurance?
- What does business insurance cover?
- Understanding commercial property insurance
- Commercial lease agreements - all you need to know
