Employers' Liability Insurance

Introduction

Most employers are required by law to have employers' liability insurance, which covers claims for compensation made by employees who are injured or become ill as a result of their employment.

Here we explain who needs to have employers' liability insurance, what it must cover and what to consider when choosing a policy.

Legal requirements

Under the Employers' Liability (Compulsory Insurance) Act, employers' liability insurance is legally required by employers as soon as they have one or more people working for them as 'employees'.

According to guidance provided by the Health and Safety Executive (HSE) (www.hse.gov.uk/pubns/hse40.htm), whether or not someone is an employee depends on the terms of their employer's contract with them (which may be written or unwritten), and in particular on the degree of control that the employer has over the work they do and their working conditions. Even if someone is self-employed for tax purposes, they may be classed as employees for health and safety purposes, in which case their employer must have employers' liability insurance.

Employers must have a policy that provides at least £5 million cover against claims made by employees for:

Injuries that happen while they are working (whether on or off the employer's premises or site).
Illnesses that result from their current or previous employment with the employer.

The policy must cover the full amount of any compensation agreed with an employee or former employee or awarded to them by a court, even if the illness or injury is a result of an employer's failure to take adequate health and safety precautions, or an employee's failure to follow correct procedures.

Exemptions

Certain employers are exempt from the requirement to have employers' liability insurance, for example:

Employers who only employ close family members unless their business is a limited company.
Company directors who are majority shareholders and are the only employee of their company.

Anyone who is in any doubt about whether they need to take out employers' liability insurance should seek professional advice from an insurance broker or solicitor.

Choosing the right policy

It is important for employers to choose a policy that covers everyone who could be considered to be their employee. Since it is sometimes unclear which workers have employee status, the Association of British Insurers recommends taking out a policy that covers everyone who carries out work for the employer, including:

All employees, including casual and seasonal employees.
'Labour-only' sub-contractors.
All temporary workers, including students and people on work placements.
Any volunteers that carry out work within the employer's organisation.

Although the law requires a minimum of £5 million cover, some employers may need more than this, depending on the particular risks and liabilities of their business. Most policies provide cover of at least £10 million. Some policies also cover the legal costs that arise when an employee makes a claim for compensation.

The cost of the policy will depend on the nature of the employer's business, the number of people they employ and the employer's previous insurance claims history.

Displaying a certificate of insurance

Employers must display a current certificate of employers' liability insurance (which will be provided by their insurer) where their employees can read it easily. It can be displayed in electronic form if employees have reasonable access to it in that form. The certificate must state the minimum level of cover and the name of the business covered by the policy.

Enforcement and penalties

The law relating to employers' liability insurance is enforced by the HSE (in England, Wales and Scotland) and the Health and Safety Executive Northern Ireland. Inspectors can fine employers up to £2,500 for each day that they do not have employers' liability insurance. Failure to display a certificate, or make it available to inspectors when asked to do so, attracts a fine of up to £1,000.

Contact Ashored for help and support with Employment legislation.