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What our Nerds say about employers' liability insurance

Employers’ liability insurance helps safeguard your business if an employee is harmed because of their work and takes action against you.

You must have this insurance by law if you have employees, with only a few exceptions.

Holly Bennett Writer at NerdWallet

What is employers’ liability insurance?

Employers’ liability insurance can pay compensation costs and legal fees if an employee is injured at work or becomes ill due to their work and makes a claim against their employer. It usually also covers compensation to their beneficiaries if an employee dies as a result of their work, though check your policy to make sure.

As this is a duty of care for employers, businesses with employees must have employers’ liability insurance. There are only a few exceptions, such as if you only employ close family members or if your staff work abroad.

It isn’t just for permanent staff. You should also have cover for work carried out by casual and contract workers, including volunteers. This also includes employees working off site and if they are working from home.

» MORE: What is business insurance?

Why have employers’ liability insurance?

Below, are some of the main reasons to take out employers’ liability insurance:

  • Your business is responsible for the health and safety of any employees while they are at work.
  • Most companies with employees must have a minimum level of this cover by law.
  • It protects your business from potentially high legal and compensation costs if the case goes to court.
  • It also covers your business for previous staff who may have developed a condition because of the work they did for you
  • Claims can happen. UK insurers processed an average of £1.8 million of employers’ liability claims every day in 2020, according to the Association of British Insurers (ABI).

» MORE: Do you need employers’ liability cover?

What does employers’ liability insurance cover?

If someone who works for you is ill or injured because of their work and makes a claim against you, employers’ liability insurance helps cover court costs and any compensation paid.

This can include legal costs of attending court to defend your business against a claim and a payout, up to a maximum amount. A payout might also take account of related medical bills and lost income if an employee can’t work due to their condition.

You must have cover of at least £5 million , though you can choose a higher level if your business needs it and the premiums are affordable. Most insurers offer at least £10 million of cover as standard.

» MORE: What is and isn’t covered with employers’ liability insurance

How does employers’ liability insurance work?

Once you have taken out employers’ liability insurance, your business is insured up to the maximum amount allowed by your policy if an employee takes action against you.

If an employee becomes ill or is injured as a result of working for you, contact your insurer as soon as you’re aware of the incident. This applies whether it has just happened or the employee has made a claim. Don’t negotiate or discuss settlements with your employee before contacting your insurer.

If the employee is awarded compensation, the insurer should step in to cover costs ordered by the court and agreed legal fees. You don’t have to pay an excess if you make an employers’ liability insurance claim.

Do you need employers’ liability insurance?

If your business is based in England, Scotland or Wales and has employees, you need employers’ liability insurance by law. In Northern Ireland, it’s called employers’ liability compulsory insurance (ELCI).

There are a few exceptions when it is not mandatory, though:

  • If your employees are based abroad. But check the rules in the country where they are based for any requirements.
  • If your business isn’t a limited company and you only employ close family members.
  • If it’s a limited company with one employee who owns more than half of the shares.
  • If you are a sole trader with no employees.

What happens if you don’t have employers’ liability insurance?

You’re breaking the law if you don’t have at least £5 million worth of employers’ liability cover and you aren’t exempt from this type of cover. Health and Safety Executive inspectors can check if you have this cover and ask to see proof.

You could face a fine of £2,500 for each day you don’t have the necessary insurance. You must also display the certificate or make it easy to access online, or face a £1,000 fine.

If you’re in any doubt about your responsibilities as an employer with this type of cover, this Health and Safety Executive guide will help.

How much employers' liability cover should you have?

Legally, a business with employees must have at least £5 million of cover. But your business may require a higher level of cover, based on the risks your employees might face. Most policies offer £10 million of cover.

It might seem hard to predict how much cover you need, but consider that compensation and legal costs can be in excess of five figures.

How much does employers’ liability insurance cost?

You might see this type of cover from around £5 a month, but that won’t necessarily be what you pay. Your insurance premiums depend on a few factors, including the type of industry you work in, number of staff you employ and your insurance claims history.

The specific risks the business and its employees are exposed to can also affect your premiums. The insurer may also consider your business’s health and safety record, as well as if you’re buying other policies as a business insurance package.

To get the best deal for your business, compare a few providers to get cover that suits your business for the best price.

» MORE: How much does business insurance cost?

How to get employers’ liability insurance

To get a quote for this type of business cover, you’ll need to supply some basic personal and business information. This will usually include:

  • business structure (sole trader, limited company or partnership)
  • number of employees
  • how long your business has been trading
  • if you have business premises
  • the trade or sector
  • annual turnover or income
  • past claims information

Once you’ve compared cover and premiums, you can apply for a policy directly with an insurer or through a broker.

» MORE: Do you need an insurance broker?

Can you get employers' liability insurance as part of your business insurance?

Yes. Employers’ liability insurance is just one type of business insurance, which you can buy as a package with other types of cover, such as:

If you compare insurers, you can get a quote for other types of cover at the same time as an employers’ liability quote.

» COMPARE: Business insurance deals

How to choose the best employers’ liability insurance for your business

Check the product information so you know what’s covered and what isn’t, and if it’s right for your business. Affordability is important, but it must provide the right level of cover.

You might also want to consider the following:

  • What customers say about its customer service on review sites.
  • If there is a 24-hour legal helpline.
  • Whether it’s easy to manage your policy online.
  • If you can pay in monthly instalments and if you’ll be charged interest for that.
  • If you will be charged admin fees for making changes to your policy.
  • How quickly the insurer deals with claims settlements.
  • Whether there is any extra business support available alongside your policy.

Employers’ liability insurance FAQs

Do I need to have employers’ liability insurance?

If your business has employees, it’s a legal requirement to have this type of business insurance. This includes permanent, casual, temporary, full-time or part-time staff, and labour-only sub-contractors.

They will probably be employees if you deduct National Insurance and income tax from their pay and decide their working hours, place of work and conditions.

Employers’ liability insurance may not be mandatory if you only employ family members or your business is a limited company with one employee who owns more than half of the shares. You also don’t need it if your employees are based abroad, unless they spend 14 or more consecutive days working in Great Britain, or on an offshore installation for seven or more days. However, just because it isn’t mandatory doesn’t mean that you should not consider it.

» MORE: How to pick the right small business insurance policies

Do I need employers' liability for self-employed staff?

No. You only need employers’ liability insurance for staff you employ. Self-employed staff may want to consider if they need their own liability cover, though.

Do I need employers’ liability insurance if I have no employees?

No, you don’t need to take out employers’ liability cover if you don’t employ anyone to work for you.

Do I need employers’ liability insurance for volunteers?

Volunteers could still claim against your business. So you may want to consider taking out an employers’ liability insurance policy to cover them.

If volunteers help with your business and you already have an employers’ liability insurance policy, you may already be covered for them. If you take on volunteers for long periods, let your insurer know so you’re sure that they are included.

If your volunteers work for a charity, the charity is legally required to have employers’ liability cover for them.

Does employers’ liability insurance cover contractors?

You won’t need cover for self-employed, independent contractors who use their own equipment and tools and work for other businesses. However, if they employ staff, they may need to have this type of cover for their own business.

However, if your business takes on labour-only sub-contractors who use equipment or tools belonging to your business, and are part of your team for any period, you will need cover for them. Their health and safety is your business’s concern, and they are considered employees.

Does employers’ liability insurance cover working from home?

If employees work off site or from home, you will need employers’ liability cover for them. Your business is responsible for employees' health and safety while working, whether in the office, off site or working from home.

Whether a policy covers this may depend on the insurer, though. So check the policy documents to make sure employees who work from home are covered. Once you have employers’ liability cover, let your insurer know if staff begin remote working.

» MORE: Do you need home business insurance?

Do sole traders need employers’ liability insurance?

If you are a sole trader and only work for yourself, you don’t need employers’ liability insurance. Likewise, companies that have no employees are not required to have this type of cover.

Sole traders may want to consider other types of business insurance. These might include public liability insurance, cyber insurance or professional indemnity insurance.

Is employers’ liability insurance a legal requirement?

Yes. If you employ anyone, you must have employers’ liability insurance for at least £5 million. It’s a legal requirement, and your business could be fined if you don’t have a valid policy unless you are exempt from it under the following laws:

  • the Employers’ Liability (Compulsory Insurance) Act 1969 in Great Britain
  • the Employers' Liability (Defective Equipment and Compulsory Insurance) (Northern Ireland) Order 1972

Is employers’ liability the same as professional indemnity?

No. Both are types of business insurance that protect your business from legal and compensation costs if someone makes a claim against you, but they cover different situations.

Professional indemnity insurance relates to the services your business provides to clients. It covers the cost of claims from a client if your advice or services are found to be negligent, inadequate or cause damage to your client.

Unlike employers’ liability cover, it isn’t a legal requirement. However, professionals, such as engineers, solicitors and accountants, and some professional membership bodies, require practitioners to have this cover.

» COMPARE: Professional indemnity insurance

Is employers’ liability insurance the same as public liability insurance?

No. Public liability insurance protects your business from legal and compensation costs if a member of the public is injured or their property is damaged and they make a claim against your business.

While employers’ liability insurance is also concerned with claims for injury and illness, it is only for claims from your employees. It is also a legal requirement for most businesses, while public liability cover is usually optional.

» COMPARE: Public liability insurance

How long do you need to keep employers’ liability insurance certificates?

It’s a good idea to keep all your employers’ liability certificates. This is so that you have a complete record, in case former employees make a claim against your business.

It isn’t compulsory any more, though. Employers used to have to keep certificates for 40 years by law, but this requirement was scrapped in 2008.

About the author

Holly Bennett
Holly champions clear, jargon-free writing. She’s been creating finance content for leading organisations for over 10 years. Read more
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