- Does my business absolutely need employers’ liability insurance?
- Why is employers’ liability insurance a legal requirement? Why is it so important?
- Who counts as an employee for employers' liability insurance?
- What about sub-contractors? Are they considered employees?
- Are there any exceptions to employers' liability insurance? Are some businesses exempt?
- How much employers’ liability insurance cover is legally required?
- What are the penalties if I don’t have employers' liability insurance?
- Where and how should I display my employers’ liability insurance certificate?
- How long should I display my employers’ liability insurance certificate?
- Do I need to provide my Employer Reference Number (ERN) when purchasing employers' liability insurance?
Employers' liability insurance is not just a good idea – it’s a legal necessity for almost all businesses that employ staff.
This comprehensive guide answers your key questions about the legal obligations surrounding employers' liability insurance, ensuring you understand your responsibilities and protect your business and employees.
In almost every circumstance, if you employ anyone, you are legally required to have employers’ liability insurance. This requirement starts as soon as you become an employer.
It applies to businesses of all types and sizes, whether you are a sole trader, partnership, or limited company, and regardless of the sector you operate in.
Accidents and illnesses unfortunately happen in the workplace, even in seemingly low-risk environments. The purpose of employers' liability insurance being legally mandated is to ensure employees are protected if they suffer injury or illness as a result of their work.
Even what might seem like a minor workplace incident can lead to a significant claim for damages and compensation.
For example, a seemingly simple accident resulting in a broken wrist or ankle could lead to substantial time off work, potential surgery, and considerable costs for lost earnings, medical treatment, and legal fees.
In more severe cases, the financial impact of a claim can be devastating for a business if uninsured.
Beyond the financial implications for your business, being sued by an employee can also cause significant stress and necessitate taking time away from your business to manage legal proceedings.
Therefore, the law mandates employers’ liability insurance to:
- Protect employees: Ensure employees have recourse to compensation if they suffer work-related injury or illness.
- Protect businesses: Prevent businesses from facing potentially crippling financial losses from employee claims, allowing them to continue operating even after an incident.
- Ensure responsible employer behaviour: Encourage employers to prioritise workplace safety and employee well-being.
The definition of “employee” for employers' liability insurance is very broad. It encompasses nearly anyone who works for you, regardless of their employment type or contract. This includes:
- Full-time staff
- Part-time staff
- Permanent workers
- Contract staff
- Casual and seasonal workers
- Temporary staff
- Trainees, apprentices, and students
- Friends who are helping you out in your business
- Volunteers and people on work placements
The existence of a written contract, or the lack thereof, is not the deciding factor. If you have an agreement with someone to work for you, even a spoken agreement or unwritten understanding, they are likely to be considered an employee for insurance purposes.
The status of sub-contractors under employers’ liability insurance can be complex. In some cases, sub-contractors are legally considered to be ‘employees’, and in others, they are genuinely self-employed.
It is crucial to understand the distinction, as it affects your legal obligation for insurance.
To help determine whether a sub-contractor might be considered your employee, consider these factors:
- Direction and control: Do they work under your direction, following your instructions on how the work should be done?
- Equipment and materials: Do they use your tools and equipment, or their own?
- Work location and hours: Do you dictate where and when they work, including set hours?
- Payment method and terms: How are they paid, and what are the terms and conditions of their pay and work? Do you pay their National Insurance and income tax from their salary?
- Work determination: Who decides what work they must do?
- Supervision: Do you supervise their work?
This list is not exhaustive, but if many of these factors apply, particularly the elements of direction, control, and provision of equipment, the sub-contractor may legally be classified as a ‘labour-only’ sub-contractor, and therefore considered an employee for employers’ liability insurance purposes.
Labour-only sub-contractors typically work as you specify, using your tools and materials, and you direct their work, telling them what to do, where, and when.
Conversely, ‘bona-fide’ sub-contractors are generally considered genuinely self-employed.
They typically:
- Use their own tools and equipment.
- Decide what work to do and how to do it, working independently under their own direction.
- Determine when and where they work.
- Often work on fixed-price contracts, getting paid a set amount regardless of time or materials.
- May work for multiple clients or contractors simultaneously.
Because the distinction between ‘employee’ and ‘bona-fide’ sub-contractor is not always clear-cut, and the consequences of misclassification can be significant, it is always recommended to check with your insurance company or a professional advisor such as an accountant or solicitor if you are in any doubt about the status of your workers.
It is also vital to ensure that any bona-fide sub-contractors you engage have their own adequate liability insurance in place, at a level appropriate for the projects they undertake for you.
There are very limited exceptions to the legal requirement for employers’ liability insurance. These exemptions are typically for specific types of businesses or employment situations.
Businesses that may be exempt are those that:
Have no employees whatsoever
If you are truly a sole self-employed individual with no staff, you will not need employers' liability insurance (though you may need other forms of business insurance).
Only employ close family members
If your business only employs ‘close’ family relatives, you may not be legally required to have cover. However, this exception does not apply to incorporated bodies and limited companies; even limited companies employing only family members generally require employers' liability insurance.
Only employ workers who are based overseas
If all your employees are based and working entirely outside of the UK, UK employers' liability insurance may not be required. However, you should always check the local laws in the country where your employees are based, as local regulations may mandate insurance in that jurisdiction.
Even if your business falls into one of these very limited exception categories, it is still strongly advisable to consult with an insurance expert to confirm your specific situation and assess the broader risks to your business.
It is crucial not to assume you are exempt without seeking professional confirmation.
The minimum level of cover legally required for employers’ liability insurance is £5 million. Your policy must come from an authorised insurer to be legally compliant. However, many standard employers' liability insurance policies automatically provide cover up to £10 million.
Opting for this higher level of cover is often a sensible choice, given the potential for claim costs to escalate, particularly in cases of serious injury or long-term illness.
The penalties for failing to have legally required employers’ liability insurance are significant and can include:
Daily fines
You can be fined up to £2,500 for every day that you operate without the legally required insurance in place. These daily fines can accumulate rapidly, leading to substantial financial penalties.
Fines for not displaying certificate
You can also be fined up to £1,000 if you fail to display your employers' liability insurance certificate in a prominent place where employees can easily access it, or if you refuse to make the certificate available to inspectors from the Health and Safety Executive when requested.
It's important to note these fines for certificate issues are separate from, and in addition to, the daily fines for not having insurance at all.
It is a legal requirement to display your employers' liability insurance certificate so that your employees can easily see and access it. This demonstrates your compliance and ensures employees are aware of their protection.
Consider these points when displaying your certificate:
- Prominent location: Display the certificate in a location where it is easily visible and accessible to all employees. Common locations include staff noticeboards or communal staff areas.
- Hard copy vs. digital copy: You can display either a printed hard copy or a digital copy, or both.
o Hard copy: A printed original certificate can be displayed alongside other legally required documents, such as health and safety information.
o Digital copy: A digital version can be stored and displayed electronically, for example, on a shared network drive or company intranet that all employees can access. If you choose to display the certificate digitally, you are not legally obligated to also display a hard copy. However, it is advisable to keep a hard copy with your employee policy documents for good record-keeping.
You are required to display the certificate for the entire duration of the period that the insurance policy covers. Once a policy expires and is renewed, ensure the new certificate is displayed promptly.
While you are not legally required to keep certificates for out-of-date policies, it is strongly recommended that you retain copies of all previous employers' liability insurance certificates indefinitely. This is because some work-related illnesses can take many years to develop or be diagnosed.
If a former employee develops an illness linked to their employment from a period in the past, and you cannot provide proof of employers' liability insurance cover for that time (by producing the certificate), your business may become liable for the full costs of any claim, even if the policy is no longer active.
Keeping past certificates is a crucial step in long-term risk management.
While providing your Employer Reference Number (ERN) is not a legal requirement when purchasing employers' liability insurance, it is a requirement set by the Financial Conduct Authority (FCA), the regulatory body for financial services.
Insurers are required to collect and supply a unique identifier, which often includes the ERN, to the Employers' Liability Tracing Office (ELTO) for their central database.
This regulatory requirement is in place to help employees who have suffered workplace injury or illness to quickly and efficiently identify the relevant employers' liability insurer for their claim, even if significant time has passed since their employment.
Providing your ERN facilitates this process and ensures your business complies with industry regulations and best practices for employee protection.