- What is employers' liability insurance?
- Must I have employers' liability insurance?
- What are the penalties for not having employers' liability insurance?
- Who is considered an employee for employers' liability insurance?
- What about sub-contractors? Are they covered?
- Are there any exceptions to employers' liability insurance?
- What exactly does employers’ liability insurance cover?
- What types of claims are covered by employers' liability insurance?
- What are the risks to my business if I don't have employers' liability insurance?
- What should I do if an employee indicates they may make a claim?
- What is ELTO and how can it help employees?
Employers' liability insurance is a crucial type of business insurance for any company that employs staff.
In this comprehensive guide, we answer frequently asked questions to help you understand what employers' liability insurance is, why it's essential, and how it protects your business and your employees.
Employers' liability insurance is a type of business insurance that protects your company financially if an employee, or former employee, makes a claim against you for injury or illness caused by their work for your business.
If an employee successfully sues you for work-related injury or illness, this insurance will cover the costs of damages, compensation, and legal fees awarded to the claimant, up to the policy limit. It’s a cover required for any business, regardless of its structure or size.
It's important to distinguish employers' liability insurance from public liability insurance, which covers claims made by members of the public for injury or damage.
It is a legal requirement to have employers’ liability insurance if you employ anyone, even if it’s just one person. This legal obligation applies to businesses of all sizes and structures, whether you are a sole trader, partnership, or a limited company. It is not dependent on the sector your business operates in or the size of your company; if you employ staff, you need this cover.
The policy must provide a minimum cover of £5 million and must be purchased from an authorised insurer. Standard policies often offer cover up to £10 million, which is a sensible level given the potential risks and costs associated with claims.
Failure to have employers’ liability insurance when legally required can result in significant fines. You can be fined up to £2,500 for each day you are uninsured. Furthermore, you can also be fined £1,000 for not displaying your insurance certificate where employees can easily see it, or for failing to produce it when requested by an inspector from the Health and Safety Executive.
The definition of an employee for employers' liability insurance is broad and extends beyond just full-time staff with written contracts. You need to consider anyone working for you as an employee, including:
- Part-time employees
- Temporary staff
- Self-employed contractors (in some cases – see below)
- Apprentices and trainees
- Volunteers
- Friends helping you out
- Individuals on work experience or training schemes
It's important to note that the existence of a formal, written contract of employment is not the deciding factor. Even without a written agreement, if someone works for you, they are likely to be considered an employee for insurance purposes.
Whether you need employers' liability insurance for sub-contractors depends on their working relationship with your business and their legal status. If sub-contractors are considered legally to be your ‘employees’, you will need to include them under your employers’ liability insurance.
The determining factor is often the level of control you have over their work. If you dictate not only the work they do but also how and where they do it, and they are using your equipment, they are more likely to be considered employees.
If they operate more independently, working for multiple clients and using their own equipment, they are more likely to be considered independent contractors.
Given the complexity, it is always recommended to seek professional advice from your insurance provider, an accountant, or a legal professional if you are unsure about the status of your sub-contractors.
In limited circumstances, you might not be legally required to have employers' liability insurance. The most common exceptions are:
- Close family members: If you only employ close family relatives, you may be exempt.
- Employees based overseas: If all your employees are based outside of the UK, you might not need cover.
However, even in these situations, it is strongly recommended to consider taking out employers' liability insurance. It’s crucial not to assume you are exempt. Always verify your specific circumstances with your insurance provider or a qualified professional to confirm whether you are legally required to have cover and to assess the broader risks to your business.
Employers’ liability insurance is designed to cover the substantial financial costs that can arise from employee claims. A standard policy should cover:
- Damages and compensation payments: This covers the amount awarded to the employee for their injury or illness.
- Legal costs: This includes the cost of legal representation for your business to defend against the claim, as well as any court fees.
Depending on the specifics of your policy, it may also cover:
- Legal representation: Providing you with lawyers to handle the claim.
- Advice and compensation for attending court: Assistance if you are required to attend court.
It's important to carefully review your policy details to understand exactly what is included and if there are any exclusions. Some policies may exclude costs related to Health and Safety prosecutions alongside a claim, or the costs associated with attending court to defend a claim.
Employees can make a claim against you for a wide range of work-related injuries and illnesses, ranging from minor to severe. Examples of situations that could lead to a claim include:
- Injuries caused by accidents: Such as slips, trips, falls, or injuries sustained while using equipment (e.g., a broken ankle or arm).
- Injuries due to faulty equipment: If employees are injured because of equipment that is not properly maintained or is defective.
- Illnesses developed due to workplace conditions: For instance, illnesses caused by exposure to hazardous materials like asbestos, or conditions like occupational asthma or dermatitis.
Compensation awarded can cover various aspects of the employee's suffering and losses, such as:
- Medical costs: Covering treatment and rehabilitation.
- Medical equipment: Including specialist equipment needed due to the injury.
- Adaptations to the employee’s home: If their injury necessitates home modifications.
- Lost earnings: Compensating for current and future income lost due to the inability to work.
- Incidental expenses: Costs incurred as a direct result of the injury or illness.
- Legal fees: The employee's legal costs, in addition to your own.
Claim amounts can vary significantly based on the severity and impact of the injury or illness. Minor injuries can still result in claims of thousands of pounds, while serious cases, particularly those leading to long-term disability or inability to work, can lead to awards of hundreds of thousands of pounds.
The risks of not having employers' liability insurance are substantial, extending beyond just legal penalties.
Financial burden of claims
If you are uninsured and face a successful claim, your business will be directly liable for all damages, compensation, and legal costs. This can severely impact your cash flow, hinder your ability to conduct business, and in severe cases, could lead to financial ruin or bankruptcy, potentially affecting your ability to pay staff, suppliers, and contractors.
Legal fines
As previously mentioned, daily fines for operating without insurance can accumulate rapidly.
Reputational damage
Being uninsured can damage your business's reputation. It may signal that you are not a responsible employer who prioritises employee welfare.
Loss of business opportunities
Some organisations and trade associations may refuse to work with or allow membership to businesses without employers' liability insurance. This can limit your ability to secure contracts and partnerships.
Impact on employee morale and loyalty
Lack of insurance can negatively impact employee morale and loyalty. Employees may be reluctant to work for a business that does not demonstrate a commitment to their health and safety through insurance protection, and it may lead to difficulty in attracting and retaining staff.
In contrast, having employers' liability insurance sends a positive message to your workforce, showing them they are valued and that you are a responsible and caring employer, which can improve productivity and reduce employee turnover.
If you believe an employee or former employee might make a claim against your business, it is crucial to take immediate action:
- Notify your insurance company immediately: Contact your employers' liability insurer as soon as possible to inform them of the potential claim.
- Check your policy terms: Review the details of your policy to understand your coverage and responsibilities in the claims process.
- Seek legal representation: Your policy may entitle you to legal representation to help manage the claim. This can save you significant time in dealing with complex case administration and help ensure the matter is resolved fairly and efficiently.
The Employers’ Liability Tracing Office (ELTO) is an independent organisation established by the insurance industry. ELTO's purpose is to simplify the process for employees to trace details of their former employers' employers’ liability insurance policies.
This is particularly important because some work-related illnesses can take many years to develop or be diagnosed. Without ELTO, it could be historically challenging for employees to find the relevant insurer from a previous period of employment, hindering their ability to make a claim.