Employers' liability insurance – a guide for small businesses
Since 1969, employers' liability insurance has been required by law for almost all companies. It is designed to provide protection for employees who are injured as a result of their employment.
Do you need employers' liability cover?
You need this form of insurance if you employ people, even if they are only on short-term, casual contracts or work part time. Deciding whether someone is an employee is usually straightforward, although there can be grey areas. Make sure you are clear on whether your worker is an employee or a freelance contractor.
Important indicators of employed status are:
- Being paid hourly or weekly through payroll with national insurance and income tax deductions
- The worker having to complete tasks using your equipment and under your direction
- The worker having to carry out the work themselves, rather than being able to delegate to someone else
You also need employers' liability insurance if you use volunteers or unpaid staff such as marshals and referees.
Companies that are exempt from employers' liability
Certain companies are exempt from the legal requirement to take out employers' liability insurance – although it may still be worth considering taking out a policy as extra protection.
Exempt companies include unlimited companies employing only close family members; partnerships where all workers are equal partners and no one else is employed; and sole traders or unlimited companies with just one employee who also owns more than half of the share capital.
What happens if you don't take out employers' liability insurance?
If you are required to have employers' liability insurance but do not take out a policy, you can be fined up to £2,500 per day. The policy should provide cover for a minimum of £5 million and the insurance certificate should be displayed in the workplace. If the certificate is not on display, you could be fined an additional £1,000. It is much more affordable to simply take out a policy and display the certificate as required.
If you do not have insurance, an employee could still make a claim against you. However, instead of your insurance company footing the bill for compensation and legal costs, your company could be liable for these directly. A single claim could be enough to push a small or medium-sized company into insolvency.
What is covered by employers' liability insurance?
This form of insurance provides cover for illness and injury that occurs on business premises, or as a direct result of an employee's working practices. It is important to remember that injury and illness is not limited to physical afflictions; psychological problems are also included in the definition. For example, employees could bring a claim in relation to workplace bullying if this causes mental health problems, or seek compensation if they experience trauma in the course of their work.
You need to be clear what is covered by your policy and what is not. For example, if your employee has a company car, you should understand whether accidents in the vehicle would be covered by your employers' liability insurance policy or by the vehicle policy.
It should also be noted that a claim can be made against you once an employee has left your company, or even when the company has ceased trading. For example, if an employee is exposed to asbestos in the workplace, they may develop mesothelioma, an often fatal lung condition, decades later. Your insurer would still be required to provide cover.
How premiums are calculated
The cost of insurance is based on a range of factors, such as the perceived risk level, your claims history, the size of your business, number of employees and total level of cover required.
Why not talk to Stride about your insurance needs today?