Employers liability insurance, the facts

Nearly all companies that employ other people are obliged by law to have employers liability insurance. This protects their employees against the hardship caused by any injury or disease that they suffer resulting from their employment. The Employers’ Liability (Compulsory Insurance) Act 1969 demands that an employer has insurance cover against any such claims. This helps your employees but also protects your business from the expenses related to serious accidents or illnesses.

Why is employers’ liability insurance required?

An employer takes responsible for the health and safety of their employees in the workplace. However, everyday accidents do happen in Britain’s work places. Your employees could have an accident at work and suffer a debilitating injury. Alternatively, current or previous employees may develop an illness related to the work they did whilst in your employ. When this happens the employee may try to claim compensation from your company.

Employers’ liability insurance covers the cost of compensation for your employees. It also covers the legal cost attached to dealing with the claim.

Under the Employers Liability Act your company can face fines if it do not have a current and legal employers’ liability insurance policy.

Who really checks on employers’ liability insurance?

The enforcement of the employers’ liability insurance is done by the Health and Safety Executive (HSE). They will expect to see your certificate of insurance and confirm it complies with at least the minimum standards.

The fines for not having valid insurance can be up to £2500 a day. You can also be fined £1000 for not displaying the certificate of liability insurance.

How do my employees or the HSE know whether the company has employers’ liability insurance?

You will be given a Certificate of Employers’ Liability Insurance. You must display a copy of the Certificate of Insurance where your employees can easily read it.

What level of cover does the employers liability laws demand?

The minimum level of cover demanded is £5 million. Most insurance policies, however, offer £10million as standard.

This may sound like a lot, but you must consider that an accident may involve several members of staff and that any damages for disability caused will take into consideration the lifelong cost of care, as well as the pain caused and income lost. In serious incidents, a lifetime of care, plus loss of income adds up to a massive sum over the year.

Recently, a painter who fell through scaffolding and was left brain damaged was awarded a £2.4m lump sum plus £105,000 a year for life. This allowed him to buy a specially fitted house and to pay for full time care. Similarly, a manager who was left with physical and mental handicaps after a work related accident received a one off payment of £5.1m. With legal fees on top of these types of payment, most small companies would be bankrupted.

However rare these extreme incidents are, it is important your business is fully protected.

What conditions can an insurance company place on my policy?

Employers’ liability insurance is an agreement between the insurer and your company. This means that both side have certain requirements that must be met. You will need certain costs met in the event of a claim. Your insurer will want to know the specific activities that your business wants insured and to have a chance to consider these in some detail.

Once you have an employer’s liability insurance policy, however, you should be covered for all activities you have declared, even if you have fallen foul of Health and Safety laws.

Are there any rules about keeping old liability insurance records?

Some work related diseases take years to develop and diagnose and therefore claims may be made years after the end of a worker’s employment. Therefore companies are required to keep the certificates of liability insurance for at least 40 years. These can be kept in paper archive or as scanned documents. The record must be accessible if demanded during a health and safety inspection.

Are any businesses given exemption by the Employers Liability Act?

The following employers do not need their own employers liability insurance:

• Public bodies such as; government departments and local authorities, police and health authorities,
• Non-limited businesses employing only family members. This includes: husband, wife, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half brother or half-sister).
• Sole traders and partnerships where their owners/employees owns at least 50% of the trading company.

Further details of those exempt from employers’ liability insurance are listed at section 3(1)(a) and section 3(1)(b) of the Employers’ Liability (Compulsory Insurance) Act 1969, also Schedule 2 of the 1998 Regulations.

I only use self-employed workers; do I not need employers’ liability insurance?

The employers’ liability insurance laws refer only to employees, however in practice this may mean people that you consider self-employed.

Whatever tax status they have or the nature of the contract you have signed, the nature of your relationship and the amount of control you have over their work may determine whether the HSE consider them under your liability.

Things to consider when assessing the need for employers’ liability insurance include:

• Whether you make national insurance and income tax payments for them.
• Whether your company has to absorb any losses suffered connected to their work.
• Whether your company keeps any profit they generate (ignoring agreed commission or bonus schemes).
• Whether you have the same right to dictate the place and nature of their work, as you would expect from a normal employee.
• Whether you provide their materials and equipment.
• Whether they could employ someone to do the work if they are unavailable to work or if you expect them to do it (as you would an employee).
• Whether you they have a similar workload or conditions as one of your employees.
  

In most cases you will not need employers’ liability insurance for volunteers or those who are:

• Unemployed people involved in training programme's.
• Students on a work experience.
• Unpaid, short-term interns.

It is important you talk to your insurance company if you start to work with any of the above types of volunteers. They can help you stay compliant with the law and may even be able to include them at no extra cost.

Can I get more information about employers’ liability insurance?

If you want further information on employers liability insurance you should speak to your local HSE office or the Department for Work and Pensions, both available online.

If you feel you need independent legal advice about your company or the definition of an employee, you should speak to a solicitor or your local legal centre/Citizens’ Advice Bureau.

• For more information read the employers liability fact sheet or what is liability insurance.
• Why not try our liability insurance comparison system for tradesmen or professionals
• Help with our system can also be found in our liability insurance help menu