Why is employers’ liability insurance important?

Employers’ liability insurance is important to protect both the worker and the business. It is so vital the government has made it a legal requirement in most instances. No one should go to work and worry about becoming injured, and employers’ liability insurance means a business should always have access to funds to pay compensation should an employee become injured, ill or die as a result of doing their job.

That does not take away the importance of health and safety at the workplace, and businesses can actually be sued for damages by their insurance provider if they are found to have been negligent.

The law states a business is liable to pay a £2,500 fine for every day it does not have a policy in place and doesn’t qualify for an exemption.

The law also states employers’ liability insurance must be held with a limit of at least £5 million.

Not only that but proof of the company’s employers’ liability insurance must be visible for all members of staff to see. That could be in the form of a poster in an accessible place or, as of 2008, it can be posted electronically. Employers must ensure members of staff know how to find it and have reasonable access to it. Failure to do so risks a £1,000 fine from the Health and Safety Executive.

Industries with higher-than-average reports of workplace injury in 2020 were agriculture, forestry, fishing, construction, accommodation and food services, manufacturing and wholesale/retail trade, according to the HSE.

Meanwhile, public administration, defence, human health and social work and education were the industries with higher-than-average ill-health among employees.

The coronavirus pandemic has put additional responsibility on employers to report any cases which may have been caused by occupational exposure to the disease. They are required to report the cases to the relevant regulatory body.

The HSE found 31,380 occupational coronavirus cases were reported between 10 April 2020 and 13 March 2021. Out of these, there were 367 deaths.

Employers’ liability insurance meaning

Employers’ liability insurance is a policy that covers the cost of compensation claims and legal costs if an employee is ill, injured or dies as a result of work.

Businesses are required by law to hold employers’ liability insurance with a minimum of £5 million coverage, according to the Employers’ Liability (Compulsory Insurance) Regulations 1998. This may need to be higher if a business carries out more dangerous work, or has a high number of employees.

The Employers’ Liability (Compulsory Insurance) Act 1969 sets out the definition of an employee and those exempt from having to hold a policy.

The Health and Safety Executive has simplified the legal text and put together a comprehensive guide.

When is employers’ liability insurance required?

Employers’ liability insurance is required by law for almost all businesses that employ members of staff. It is not just permanent workers who qualify to be covered, but a range of contract types including zero-hours workers, children, and some freelancers and agency workers.

While there are some exclusions, anyone who falls into these categories needs to be covered by employers’ liability insurance:

• Has equipment and materials provided by the business.
• Has national insurance and income tax deducted by the business.
• Has hours and location set by the business.
• Is not allowed to subcontract work out.
• Has the same work conditions for the same work as other employees who do qualify for employers’ liability insurance.
• Must share profits with the business.

When is employers’ liability insurance not required?

There are some instances where a worker does not qualify for employers’ liability insurance by law. Some businesses choose to take out a policy for them regardless as 700,000 people suffered an injury at work in 2019/20 according to the Health and Safety Executive’s Labour Force Survey. Another 1.6million people suffered a work-related illness in Great Britain in the same year, the HSE said. And £16.2 billion was the estimated cost of injuries and ill-health from working conditions.

But legally a business is not required to take out employers’ liability insurance for anyone who:

• Uses their own equipment and materials to carry out the work.
• Operates as a business and does not have income tax and national insurance deducted by the employer. However, if the worker is classed as self-employed for their own tax benefits but is treated the same as other members of staff they still require employers’ liability insurance.
• Chooses their own hours and location of work and can subcontract work out.
• Is a close family member. This rule does not apply in limited companies. A close family member is defined as either: Husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother or half-sister, according to the Health and Safety Executive.
• Is based abroad and is not in Great Britain for more than 14 consecutive days, or more than seven on an offshore location.

Certain organisations do not need employers’ liability insurance and these are largely in the public sector:

• Health service bodies i.e. The NHS, primary care trusts and Scottish health boards.
• Publicly-funded organisations such as courts.
• Most government departments, local authorities, police and other nationalised industries.
• Family businesses that do not operate as a limited company. As explained above, the business owner’s closely-related family members are exempt from employers’ liability insurance, but not if they operate as a limited business.