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Published 18 May 2023
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What is Employers’ Liability Insurance?

If your business has employees, it’s likely that you need to take out employers’ liability insurance. From what it is to who it covers, here’s what you need to know.

If you employ anyone in the UK, and they’re not part of your family, you will likely need employers’ liability insurance. 

Employers liability insurance is protection for your business if someone who works for you is injured or falls ill due to their work. It helps cover the cost of compensation and legal fees if your employees make a successful claim against your business. 

You can buy it as standalone cover or as part of a business insurance package. Without it, you could be liable to pay these costs, which could run to significant amounts – and you may also be breaking the law.

» MORE: What is business insurance?

Who does employers’ liability insurance cover?

Employer’s liability insurance covers legal fees and compensation costs if someone you employ makes a successful claim against you for injury or illness. It can also cover you if the worst happens and an employee dies while working for you.

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
  • volunteers
  • referees, marshals and advisers

It can also cover past employees who make a claim against you for harm caused by past work at your business.

» MORE: What claims does employers’ liability insurance cover?

Does employers’ liability insurance cover contractors?

Contractors and labour-only subcontractors also may be covered if they are treated in the same way as an employee would be. 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, they may be covered.

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.

Your employees are covered under employers’ liability insurance whether they have a written employment contract or an assumed contract. This would apply if you spoke about the work and agreed on the terms in person, for example.

Do you need employers’ liability for two directors?

Even if you don’t employ anyone, if your limited company has directors who own less than 50% of shares in the business, you 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. 

Is employers’ liability insurance a legal requirement?

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. In Northern Ireland, it’s called employers’ liability compulsory insurance (ELCI).

You must:

  • have cover in place as soon as you employ anyone
  • take out a policy that covers you for at least £5 million
  • buy insurance from an authorised insurer – you can check this using the Financial Conduct Authority’s Financial Services Register

You can be fined £2,500 for each day you don’t have insurance or don’t meet the above criteria. You also must make your employee liability certificate available to an inspector if you’re asked to, or you could face a £1,000 fine.

If you only employ family members, such as your spouse or civil partner, parents, grandparents, siblings or children, you may not legally need employers’ liability insurance. However, if you are a limited company, the exemption won’t apply. 

Even if you are exempt, you can still take out cover if you want to. You may want to consider whether you could afford to pay out compensation if an employed family member made a claim against you.

» MORE: Do I need employers’ liability cover?

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 type of business and the risks it faces
  • how many employees you have 
  • your claims history
  • the excess (the sum you agree to pay towards a claim)

Following strict safety procedures and proving that your staff have the necessary training and safety equipment to minimise risk while working may help reduce the cost of your cover.

Image source: Getty Images

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