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information and advice - Employers Liability Insurance

What is employers liability insurance?

If you are an employer, you are legally required to take out adequate employers liability insurance...

It ensures that, should an employee (current or former) be injured at work or become ill as a result of their work and decides to sue you for compensation, there is at least a minimum level of insurance to cover the claim.

Failure to take out an insurance policy which complies with the law, can result in you being fined.

What conditions will apply to your business?
As with any insurance policy there will be a number of conditions attached and will be tailored to your business.

Certain conditions, however, cannot be imposed. Your insurer cannot refuse to pay compensation:

Purely because you have not provided reasonable protection against injury or disease.
You cannot provide certain information to the insurer
You have done something they told you not to do
You have not done something they told you to do
You have not met any legal requirement connected with protection of your employees

However, if you haven’t complied with the health and safety measures the law requires – risk assessments, reporting accidents etc – then the insurer could end up sueing you to reclaim the cost of the compensation.

How much cover do I need?
You must be insured for at least £5m but once you’ve assessed your risks and liabilities you may decide you need more than this. Most insurers offer cover of at least £10m. You can split the cover between different insurance companies – as long as the total is at least £5m. Bear in mind that the minmim level of cover includes costs so you may want to buy additional insurance to cover this.

How do I tell my employees about the insurance?
Your insurer will give you a certificate of employers’ liability insurance. This must clearly state the minimum level of cover provided and the companies it covers. A copy of this certificate must be displayed where employees can easily read it.

Are there any exemptions?
Most public organisations such as Government departments and local authorities, health service bodies and publicly financed organisations such as passenger transport executives are exempt.

The main exemption most likely to apply to small businesses, however, is the one relating to family businesses. If your employees are close relations (spouse, parent, grandparent, stepparent, child, grandchild, stepchild, sibling or half sibling) you do not have to take out the insurance unless your family business has been incorporated as a limited company.

Who do I need employers liability insurance for?
You need to take out insurance for all your employees. This is usually straightforward but if you have self-employed people working for you on a regular basis they may be covered too. Their tax status or job title is irrelevant. What matters is the real nature of the relationship you have with them and the degree of control you have over the work they do.

There are no definite rules, but the following should help you work out whether or not someone is an employee for the purpose of employers liability insurance:

You will need employers liability insurance if some or all of the following statements apply:

  • You deduct National Insurance and tax from the money you pay them
  • You have the right to control where, when and how they work
  • You supply most materials and equipment
  • You have right to the profits and suffer the losses your worker makes
  • You hire that person to do the job and the cannot send a substitute in their place
  • They are treated as other employees, eg they enjoy the same terms and conditions

You will not need employers liability insurance if some or all of the following statements apply:

  • You do not deduct tax or National Insurance (though this alone is not conclusive proof)
  • They do not work exclusively for you
  • They supply most of the equipment and materials they need to do for the job
  • They are clearly in business for personal benefit
  • They can employ a substitute when they are unable to do the work themselves

You normally don’t need to insure volunteers but you will need cover for students working unpaid, participants taking part in a youth or adult training programme or a school student on a work experience programme. If this applies to you, inform your insurance company and consider taking out insurance as they may be classed as employees.

You only need to insure domestic help such as gardeners and cleaners if they work exclusively for you. If they have more than one client you are probably exempt.

How long do I have to retain certificates of insurance for?
You must keep copy certificates of insurance for 40 years after their expiry date. This is because claims can be made for diseases many years after the disease is caused. You must make these available to health and safety inspectors on request.

This requirement only applies to policies in force on 31 December 1998 or later. But you should retain any records relating to previous insurance polices just in case.

What happens if I don’t have the insurance?
The Health and Safety Executive will ask to see your certificate of insurance and any other relevant policies, when they inspect your premises. You can be fined up to £2500 for any day you are without suitable insurance. Failure to display to the certificate or show to the HSE inspectors can lead to a £1000 fine.