What is Employers’ Liability Insurance?

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Employers’ liability insurance funds legal and compensation costs of a business should an employee become ill, injured, or die as a result of work carried out for the company. It covers previous and current employees in a wide range of scenarios – not just permanent members of staff.

In almost all cases, it is a legal requirement for a business to hold employers’ liability insurance if it employs a member of staff. The Health and Safety Executive will fine businesses up to £2,500 a day for outstanding insurance policies. They can also fine a business £1,000 for being unable to prove it has employers’ liability insurance.

Even if a business does not legally require employers’ liability insurance (exemptions are listed below), it is wise to consider it. The latest figures show about 1.6 million people suffered a work-related illness in Great Britain in 2019/20, according to the Health and Safety Executive. According to the HSE’s Labour Force Survey, almost 700,000 working people sustain an injury at work each year. During 2019/20 111 people died at work, the HSE’s figures showed. And £16.2 billion was the estimated cost of injuries and ill-health from working conditions.

Businesses are required by law to hold employers’ liability insurance with a minimum of £5 million, according to the Employers’ Liability (Compulsory Insurance) Regulations 1998. This may need to be higher if a business carries out more dangerous work or has a high number of employees.

There are exemptions when a business does not require employers’ liability insurance, and these can sometimes be difficult to explain definitively. Hence, it is always worth discussing scenarios with an insurance provider if unsure.

 

When is employers’ liability insurance required?

Employers’ liability insurance is required in almost all circumstances, even if the people a business takes on are not permanent or full-time.

If a business does any of the following, it probably needs to take out employers’ liability insurance:

  • Supplies all equipment and materials to do the job.
  • Control when and where someone works and how work is carried out.
  • Deduct national insurance and income tax from money paid for the worker.
  • Have a right to profit made (even if the business does not keep it all).
  • Treat the worker in the same way as other employees – by giving them the same working conditions for the same work.
  • Demand the work is carried out by the sole person, rather than allowing work to be subcontracted out to someone of the worker’s choosing.

Do I need employers’ liability insurance?

In most circumstances, you probably need employers’ liability insurance if you employ a staff member. It is a legal requirement to hold this insurance, and not doing so risks a daily fine until a policy is in place. However, there are certain scenarios when employers’ liability insurance is not required.

If a worker falls under the below categories, a business may not need to take out employers’ liability insurance for them:

  • Does not work exclusively for the business.
  • Supplies the majority of their own equipment and materials needed for the job.
  • Is a close family member, and the business is a sole trader or partnership (limited companies still need employers’ liability insurance for family members working for them).
  • Is based abroad and does not spend 14 continuous days or more in Great Britain (or seven continuous days on an offshore location).
  • Does not have national insurance and income tax deducted by the business. However, if a worker is classed as ‘self-employed’ for tax purposes but is classed as an employee for other reasons, the business still needs employers’ liability insurance.
  • Operates as a business for their personal benefit.

The following employers are exempt from holding employers’ liability insurance:

  • Most government departments and agencies, local authorities, police and other nationalised industries.
  • Health service bodies. As well as the National Health Service includes primary care trusts and Scottish health boards.
  • Some other publicly-funded organisations such as courts.
  • Family businesses not incorporated into limited companies that hire only closely related family members. The Health and Safety Executive lists these as a husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother or half-sister.

 

How to get employers’ liability insurance

Employers’ liability insurance is the most common business insurance, so that any commercial business insurance providers will offer it. A business can go directly to a provider to get a quote or use a broker who may have access to better rates.

Remember, when going direct to a provider yourself, the people you are speaking to work for the insurance provider, so you may not give the most competitive rates.

If you do decide to research the insurance yourself, make sure you check reviews of the providers using websites such as Trustpilot, Reviews.co.uk and Google.

Some websites offer an independent comparison service, such as insurance experts Nimblefins, using partners QuoteZone, come back with up to five quotes after a business fills in a short form.

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