A guide to employers’ liability insurance for limited companies

Most UK businesses are required by law to insure against liability for injury or sickness caused to employees in the workplace. This form of cover is called Employers’ Liability Insurance. To help you understand everything about employers’ liability insurance and your legal obligations surrounding it, we’ve compiled this comprehensive guide.

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What is employers’ liability insurance?

As the owner of a company, you are legally responsible for the health and safety of all of your employees while they are at work. As a result, when your employees are injured at work or become ill as a result of the work they are carrying out as part of their employment, they may take steps to claim some form of compensation from you.

The Employers’ Liability (Compulsory Insurance) Act 1969 is a UK law that was introduced to make sure businesses always have a layer of financial protection against these sorts of claims.

The Employers’ Liability (Compulsory Insurance) Act 1969 makes it compulsory for most businesses to take out a minimum level of insurance cover. By doing so, you will be able to meet any compensation costs resulting from the illness or injury of any employees, regardless of whether it was caused on-site or away from your business premises.

That being said, it’s worth mentioning that any illnesses or employee injuries relating to motor accidents or traffic collisions that occur while individuals are carrying out work for your company can normally be covered separately as part of a motor insurance package.

It’s also important to note that employers’ liability insurance only covers your business against claims made against you by employees. Employers’ liability insurance will not protect your company from claims made against you by members of the public or other businesses. For these types of claims, you’ll need public liability insurance, which isn’t a legal requirement for most businesses.

Does the Employers’ Liability (Compulsory Insurance) Act 1969 apply to my business?

The law is designed to cover most UK limited companies and other types of businesses to ensure both owners and employees are legally and financially protected at all times.

However, there are some exceptions to the rule. Your company could be exempt from meeting its insurance obligations if you are:

• A public organisation, such as a government department or agency, a local authority, a police authority, or a nationalised industry
• A health service body, such as a National Health Service trust, health authority, primary care trust, or Scottish health board
• An organisation financed through public funds, such as a passenger transport executive or magistrates’ courts committee
• A limited company that employs only its owner, and that employee owns 50% or more of the company’s issued share capital
• A family business that only employs people who are related to the owner, such as a spouse, civil partner, parent, son or daughter, half-sibling, and so on

The family business exemption is a bit of a grey area, and it doesn’t apply to all family businesses that are incorporated as limited companies, but we’ll get to that in a minute.

Which individuals must my company have employers’ liability insurance for?

If you have a contract of service or apprenticeship with an individual to carry out work for or on behalf of your company, you need to have employers’ liability insurance for that person.

However, it’s a bit more complicated than that. Whether you actually need employers’ liability insurance for various team members depends on the terms of your contract with each person.

A contract can be spoken, written, or implied – and it doesn’t actually matter whether you call somebody an employee or a self-employed worker, or whether you call your contract a contract of employment.

It doesn’t matter what their tax status is, either. All that does matter is the nature of your relationship with that individual and the degree of control that you have over the work that they are carrying out.

As a general rule of thumb, you should always take out employers’ liability insurance if you have anyone working for your company in which:

• You need to deduct National Insurance Contributions and Income Tax from the money that you pay them for their work
• You control where they work, when they work and how they go about carrying out that work
• You treat an individual in the same way as an ordinary, full-time employee – for example if they do the same type of work in the same sort of working conditions
• You can make a claim to part or all of the profit your workers make (even if you choose to share this profit with them as part of a commission, company shares of performance-based pay)
• You supply them with work materials and equipment to carry out their tasks.
• You need that person to deliver a specific service, and that individual cannot employ a substitute to carry out that service if they are unable to work

Are there any individuals I do not need to take out employers’ liability insurance for?

On the flip side, there are certain instances where you normally do not need to take out employers’ liability insurance for individuals carrying out work for your company. These instances include situations in which:

• The individual does not work exclusively for you
• The worker supplies most of the equipment or materials they need to carry out work for your company
• The worker is indisputably in business for their own personal benefit
• The individual can employ a substitute to carry out work for your company when they are unable to work themselves
• Your company does not deduct Income Tax or National Insurance Contributions (although please note that even if somebody working for your company is self-employed from a tax point-of-view, you may still be required to cover them with employers’ liability insurance for other reasons)

You do not normally need additional employers’ liability insurance for people who are volunteers, or for:

• Students carrying out wilful unpaid work for your company
• Individuals who aren’t employed, but are participating in some sort of training programme with your business
• A student from school who is taking part in a work experience programme

The reason you aren’t required to take out extra employers’ liability insurance in these instances is that most insurers cover such circumstances in standard employers’ liability insurance policies.

If you do take on volunteers or young people to do unpaid work experience, you do not need to inform your insurer unless it is for a long period of time or if they’re carrying out work for your business that isn’t your company’s usual business.

Another final point of confusion to consider is domestic help. Generally speaking, you are not required by UK law to take out employers’ liability insurance for workers like cleaners or gardeners, as long as those individuals are working for more than one person. The same exception generally applies to childminders, unless that childminder or domestic worker only works for you.

If you are that individual’s sole employer, you will likely be required by law to take out employers’ liability insurance.

Does my company need employers’ liability insurance if my employees work abroad?

If your company employs workers who are normally based in the UK, you need employers’ liability insurance. This includes employees working on offshore installations or associated structures, too.

That being said, UK limited companies are not required to take out employers’ liability insurance to cover any employees who are based abroad, even if that work abroad is part of a secondment. This doesn’t mean you are totally free of legal insurance requirements for those overseas workers, though.

You will need to check with each local authority in the country your employees are resident, to find out whether there are any local requirements your company is required to fulfil.

If your overseas employees are normally based abroad but spend more than 14 days continuously in the UK or more than one week on an offshore installation, you will subsequently be required by UK law to take out employers’ liability insurance for those workers.

Are there rules on the type of insurance company I use for employers’ liability insurance?

There aren’t too many rules surrounding the type of insurer you use to cover your business against employee injury or illness. All that really matters is that you use an authorised insurer, otherwise you could be breaking the law.

For reference, an authorised insurer is basically just any individual or company working under the terms of the Financial Services and Markets Act 2000 and is on the Financial Conduct Authority’s register of authorised insurers.

Are there any situations in which I won’t be covered with employers’ liability insurance?

When you take out employers’ liability insurance, you will subsequently be entering into an agreement with your authorised insurer that outlines the circumstances in which they will be expected to pay compensation. Those circumstances normally cover specific activities that relate directly to your business and its normal activities.

Yet it is worth noting that there are some specific conditions that could end up restricting the amount of coverage your insurer is required to pay. These conditions in which your authorised insurer may choose not to pay compensation may include:

• If your company has not provided reasonable protection for your employees against injury or disease
• If your business does not keep specific records or fails to provide your insurer with information about such records
• You or your business has done something your insurer told you not to do
• You or your business has not done something they told you to do
• You haven’t met any legal requirement connected with the protection of your employees

This list is by no means exhaustive. Many insurers could also refuse cover if you have failed to carry out a risk assessment or fulfilled other statutory health and safety requirements.

If you are covered, your insurer is required to pay the full amount of any compensation package that is agreed with your employees, former employees, or any compensation amount that is awarded to them by a court.

Your insurer will not be allowed to impose conditions that make you, your workers, or former employees pay part of that claim. Although your company is allowed to agree to repay part of any compensation paid to employees or former employees.

How much insurance cover will my company need?

Under UK law, if you are required to take out employers’ liability insurance, you must be insured for a minimum of £5 million. Depending upon the type of work your business carries out, you may want to consider taking out a higher policy, and most UK insurers will offer affordable coverage extending to more than £10 million worth of insurance.

It’s crucial to note that if your company or business is part of a group, a single employers’ liability insurance product can be taken out to cover the entire group of companies or businesses. In such a scenario, the entire group will need at least £5 million worth of insurance coverage.

Your company or business can have more than one employers’ liability insurance product if you wish. All that matters is the total value covered is £5 million.

Am I required to tell employees that I have employers’ liability insurance?

You need to make your employees aware that your business is covered by employers’ liability insurance.

Whenever you take out an insurance policy or renew an existing policy, your authorised insurer will provide your business with a certificate of employers’ liability insurance. That certificate will indicate the minimum level of coverage provided by the policy and the name of the company or companies covered.

You are subsequently required by law to display a copy of that certificate in a place where employees can easily access it and read it.

That being said, you don’t have to worry about displaying it in your staff break room. Since 2008, companies have been allowed to display their insurance certificate electronically. If you choose to go down this route, you’ll need to make sure your employees know how to find it, where to find it, and have reasonable access to it. Sharing the link as part of a digital staff handbook or on a staff intranet system that all employees have access to, are commonly used electronic display methods.

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You will be allowed to use the same certificate in all company locations if you have employees working in England, Wales, Northern Ireland, Scotland, Guernsey or the Isle of Man.

If you have employees working on offshore installations or associated structures, you don’t need to provide and display a copy of your insurance certificate at every location. But if an employee asks to see a copy of the certificate you are required to provide them with a copy as soon as is reasonable – normally 10 working days.

You are not required to keep or display out of date copies of insurance certificates. That being said, it’s generally advisable to keep a complete record of a company’s employers’ liability insurance policies. That’s because some diseases could take decades to appear, and so former or current employees may ultimately choose to make a claim against your company for the time period in which they were exposed to an illness – which could fall under a previous insurance policy period.

If this happens to your business and you don’t have the details you need to process a claim, you may end up having to pay out claims yourself. That’s why it’s always smart to keep records.

What will happen if I don’t have employers’ liability insurance?

Because employers’ liability insurance is a legal requirement, you can expect penalties if you fail to comply with your legal obligations.

Employers’ liability insurance laws are enforced by the UK Government’s Health and Safety Executive (HSE), and it employs inspectors that are allowed to check up on your company and make sure you have the correct insurance with an approved provider. Those agents can ask to see your company’s certificate of insurance or any other insurance details at any time.

If you fail to meet your legal requirements under The Employers’ Liability (Compulsory Insurance) Act 1969, you could be fined up to £2,500 per day for every single day that your company is found to be without appropriate employers’ liability insurance.

Likewise, if you don’t display your certificate of insurance or fail to show it to HSE inspectors when they ask to see it, you can also be fined up to £1,000.

The bottom line

Although there are certainly exceptions to the law, most businesses employing UK workers are required to take out employers’ liability insurance coverage. It isn’t optional for most businesses, but it is without doubt in the best interest of your business and those working for your business that you comply with your obligations.

Many authorised insurers offer a range of bespoke employers’ liability insurance packages at affordable rates, and you never know when coverage will end up saving your business.

If you’re in doubt about the legitimacy of an insurer, you should get in touch with the FCA or consult the British Insurance Brokers’ Association to find credible coverage that works for your company.