What is Employers’ Liability Insurance?
If your business has employees, it’s likely that you need to take out employers’ liability insurance. But what is it and who does it cover? Below, we define employers’ liability insurance and explore the basics.
If you employ anyone in the UK, and they’re not part of your family, you will likely need employers’ liability insurance. But what is it and who does it cover? Below, we explain what employers’ liability insurance is and why you may need it.
Employers’ liability insurance meaning
Employers’ liability insurance is one of the options available in a business insurance package. However, if you employ people, it’s likely that you’ll be legally required to take out this type of insurance. This is to protect your employees in case they were injured, fell ill or died because of the work they do for your business.
If one of your employees got injured at work and made a successful claim against your business, you would be required to pay compensation. Employers’ liability insurance can cover the cost of compensation, as well as any legal fees that might apply.
Who does employers’ liability insurance cover?
Employer’s liability insurance covers you and your business as ‘the employer’ in the event that one of your workers made a successful claim against you for injury or illness. It can also cover you if an employee sadly died while working for you, though you should check whether this is covered with your insurer or broker.
The policy would pay the compensation and any related legal fees. According to the Association of British Insurers (ABI), employers’ liability insurance can pay out compensation owed to:
- permanent employees
- employees on fixed-term, casual or seasonal contracts
- temporary staff – including interns and apprentices
- referees, marshals and advisers
Contractors and labour-only subcontractors may also be covered in some cases. If they are seen as an ‘employee’ – meaning they are treated in the same way as an employee would be – then they may be covered under your employers’ liability insurance. For example, if you supply a contractor with the tools they need for the job, or are responsible for when, where and how they work.
On the other hand, if a contractor supplies their own tools and materials, does not work exclusively for you, and gets paid without National Insurance or Income Tax being deducted, you may not need cover for them.
Limited companies with directors who own less than 50% of shares in the business will also need employers’ liability insurance. For example, if two directors split the shares 60:40, the director owning 40% of the business would need to be covered by employers’ liability insurance.
Your employees are covered under employers’ liability insurance whether they have a written employment contract or an assumed contract (if you spoke about the work and agreed the terms in person, for example).
Is employers’ liability insurance a legal requirement?
Yes, in many cases employers’ liability insurance is a legal requirement.
If you employ anyone to work in the UK who isn’t part of your family – even just one casual worker – you are legally obliged to take out employers’ liability insurance. You must:
- have cover in place as soon as you begin employing anyone
- take out a policy that covers you for at least £5 million
- buy insurance from an authorised insurer – you can find out whether your insurer is authorised on the Financial Conduct Authority (FCA) website
You can be fined £2,500 for each day you don’t have insurance or don't meet the above criteria.
If you only employ family members, such as your spouse or civil partner, parents, grandparents, siblings or children, you may be exempt from the requirement to have employers’ liability insurance, though if you are a limited company, the exemption won’t apply. However, you can still take out cover if you want. You may want to consider whether you could afford to pay out compensation if an employed family member made a claim against you.
How much does employers’ liability insurance cost?
The price of employers’ liability insurance can vary based on a number of factors, such as:
- the level of cover you choose
- the nature of your business
- how many employees you have
You may be able to keep the cost of your insurance premium down by following strict safety procedures and proving that your staff have the necessary training and safety equipment to minimise risk while working.
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Kristina is a writer at NerdWallet. A recent graduate trading French for finance, she has experience creating content for student newspaper Cherwell and an edtech company. Read more