If you run a business and employ staff, it’s important that you have the right type of insurance in place. Insuring your premises, goods, and vehicles against loss through theft or damage is essential but it’s just as important, and a legal requirement under the Employers’ Liability (Compulsory Insurance) Act 1969, to have employers’ liability insurance.
So what is this type of insurance, what exactly does it cover, and who needs to take it out?
Employers’ liability insurance is intended to cover you for any compensation claims made by an employee because of an injury sustained while at work, or for a work-related illness or condition.
This kind of policy is one of the main types of business insurance and can be designed to cover the full range of compensation claims, including for lost earnings, medical bills, professional costs, and for any legal fees incurred in a dispute with an employee.
EL insurance can also insure you for claims made by ex-employees.
Some typical examples
Consider the following scenarios: An employee slips on some spillage in your workshop and suffers a broken ankle or another long-term injury; one of your staff is burned by a faulty or unprotected piece of equipment and has to take time off work for treatment; or a former employee develops a respiratory condition which he or she says was caused by working at your premises and which means they are incapacitated.
In all of the above examples, the employee is suing you, the employer, for negligence and is seeking some form of payout and/or costs to compensate them for what they claim to have suffered.
If a court rules against you in such a dispute, you may be ordered to pay for their lost earnings as well as cover any medical bills and other related costs.
Employers’ liability insurance is designed to protect you in such circumstances and, depending on the terms of the policy you agree on, it can cover all costs, including all legal fees.
Do you need employers’ liability insurance?
As always, there are exceptions to the rule but if you employ one employee or more for your business, including in some instances members of your own family, UK law requires you to take out EL insurance with a minimum cover level of £5 million.
In essence, you must cover all of your staff who are employed under a contract of service or apprenticeship.
Failure to do so could result in you being fined up to £2,500 per day, not to mention leaving yourself exposed to any compensation claims.
Unincorporated family businesses are exempt from this requirement, however if the family business is incorporated as a limited company, it will need to be covered by employers’ liability insurance.
You are also exempt if you are the director of a limited company and the sole employee, and own 50% or more of the issued share capital.
But what if your company has two or more directors (for example, a husband and wife team)?
Our partner insurer, Qdos, told us: “Our advice to clients is that, in the scenario you set out, Employers Liability would be a legal requirement. This applies if the company employs two people regardless of share split.”
Do I need employers’ liability insurance if I’m self-employed?
In most instances, you are not legally required to have this type of policy if you work on your own, although you may still want to consider other types of insurance, such as professional indemnity insurance.
Do I need employers’ liability insurance if I’m hiring sub-contractors?
The short answer: it depends. If the sub-contractor is employed on a labour-only basis and uses your equipment, tools and materials, and works under your direction, then employers’ liability insurance is required.
If sub-contractors are considered bonafide, in other words, they use their own equipment and tools and work under their own direction, you won’t be required to have EL insurance.
Do I need employers’ liability insurance for independent contractors?
In most instances, and where the contractor is independent and also works for other employers, no employers’ liability insurance is required, according to the Health and Safety Executive.
Do I need employers’ liability insurance for part-time workers, temporary workers, students on work experience, and volunteers?
Yes, you need to have this type of policy in place to cover all of the above for insurance purposes, regardless of whether they are only at your company for a short time.
How much does will a employers’ liability insurance policy cost?
There is no one-size-fits-all type of policy as the cost of the premium will depend on the nature of your business and the number of employees you have. In all cases, it’s important to choose a policy that gives you the level of cover you need for your business and, if necessary, to seek professional advice before deciding.