Employers' liability insurance

What employers' liability insurance is and why it exists

Employers' liability (EL) insurance exists because, as an employer, you are legally responsible for the health and safety of your employees while they work for you. If an employee is injured at work or becomes ill because of the work they do, they can claim compensation from you. Without insurance, a single claim could bankrupt a small business.

The Employers' Liability (Compulsory Insurance) Act 1969 made it a legal requirement for virtually all employers to hold EL insurance. The Act recognises that employees have limited control over their working conditions and deserve a guarantee that compensation will be available if something goes wrong.

Unlike public liability insurance (which is voluntary for most businesses), EL insurance is compulsory from the day you hire your first employee. There is no grace period, no threshold based on turnover or hours worked, and no exemption for small employers.

Who counts as an employee

The definition of "employee" for EL purposes is broader than many employers realise. You need EL insurance if you engage anyone who could be considered an employee, including:

• full-time and part-time staff on any type of contract
• temporary and casual workers, including seasonal staff
• apprentices and interns, paid or unpaid
• volunteers whose work you direct, who may be treated as employees for insurance purposes if you control what they do and how
• labour-only subcontractors who use your tools and equipment and work under your direction

The key test is the degree of control you exercise. If you direct someone's work, provide their equipment, and they work primarily for you, your insurer and the courts are likely to treat them as an employee regardless of what their contract says.

What if someone is genuinely self-employed?

Genuinely self-employed contractors -- those who control their own working methods, provide their own equipment, and bear financial risk -- are not employees for EL purposes. However, this is a grey area. If you are unsure, speak to your insurer. Getting this wrong could mean your policy does not respond to a claim.

Exemptions: who does not need EL insurance

The exemptions are very narrow. You are exempt only if:

• every person you employ is a close family member: your spouse, civil partner, parent, grandparent, child, grandchild, sibling, half-sibling or step-relation. If even one employee falls outside this list, you need EL insurance for everyone.
• you are the sole director of a limited company, own 50% or more of the shares and have no other employees. The exemption ends as soon as you hire anyone else.
• your employees work entirely outside England, Scotland and Wales for more than 14 consecutive days. This applies to each employee individually, not to your business as a whole.

Even if you are exempt, consider getting cover

Exemption from the legal requirement does not exempt you from liability. If a family member or overseas worker is injured through your negligence, they can still sue you for compensation. EL insurance protects your personal and business assets from these claims. Many exempt employers choose to buy it voluntarily for this reason.

Minimum cover and penalties

The law requires a minimum of £5 million cover for any single claim (including legal costs). In practice, virtually all EL policies provide £10 million as standard, which is sensible given that serious injury claims regularly exceed £1 million.

Penalties for non-compliance

The Health and Safety Executive (HSE) enforces EL requirements. If you fail to comply:

• You can be fined £2,500 for each day you operate without valid EL insurance, so the fine keeps growing while you remain uninsured.
• You can be fined £1,000 for failing to display your EL certificate or refusing to produce it when an HSE inspector asks.

These are criminal penalties, not civil ones. A prosecution for operating without EL insurance creates a criminal record for the responsible person.

What if you cannot get cover?

If you have been refused EL insurance by multiple insurers (perhaps due to a poor claims history or a high-risk activity), contact the British Insurance Brokers' Association (BIBA) on 0370 950 1790. BIBA operates a "find a broker" service that specialises in difficult-to-place risks.

Displaying your certificate

You must make your current EL certificate available to employees and HSE inspectors. You can:

• pin it on a notice board, office wall or other place where employees can read it
• since 1 October 2008, display it on your intranet or website instead of, or as well as, a paper copy

You must be able to produce the certificate when an HSE inspector asks to see it.

Retaining old certificates

Keep copies of all EL certificates for 40 years after they expire. The law has not required this since 1 October 2008, but it is strongly advised because occupational diseases such as asbestosis, industrial deafness, or conditions caused by chemical exposure can take decades to develop. A former employee may bring a claim 20 or 30 years after exposure, and you (or your insurer) will need the certificate from the relevant period to respond.

Store certificates securely -- both digitally and in hard copy if possible. If your insurer goes out of business, the certificate is your evidence of historic cover.

What EL insurance covers

EL insurance covers compensation claims from employees who are injured or become ill as a result of their work. This includes:

• physical injuries such as slips, falls, machinery accidents, manual handling injuries, burns and cuts
• occupational diseases caused by workplace exposure, such as asbestosis, industrial deafness, dermatitis, respiratory conditions and repetitive strain injury
• psychological injury caused by excessive workload, bullying or failure to manage workplace stress
• legal defence costs, including solicitor fees, court costs and expert witness fees, even if the claim fails

What it does not cover

EL insurance typically excludes:

• Fines or penalties imposed on you by regulators or courts
• Claims from members of the public (that is public liability)
• Deliberate injury to an employee
• Motor vehicle accidents (covered by motor insurance)

Choosing your insurer and policy

Not all EL policies are equal. When selecting cover, consider:

• Your insurer must be authorised by the Financial Conduct Authority (FCA), so check the FCA register before you buy. A policy from an unauthorised insurer does not meet the legal requirement.
• Claims may not arise for years or decades, so check the insurer's financial strength rating (such as AM Best or S&P).
• £5 million is the legal minimum, but £10 million is standard and strongly recommended. In a high-risk sector such as construction, manufacturing or chemicals, consider whether even £10 million is enough.
• If the policy carries an excess, check whether it applies per claim or per employee, and whether you could afford it if several claims arise.
• Ask your broker about the insurer's record for handling EL claims fairly and promptly.

TUPE transfers and EL insurance

When employees transfer to you under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), you are responsible for their EL cover from the date of transfer, and the outgoing employer remains liable for injuries or illness that occurred before it. Tell your insurer as soon as a transfer is confirmed so that your policy covers the transferred employees from day one.

The Employers' Liability Tracing Office (ELTO)

The Employers' Liability Tracing Office (ELTO) keeps a database of EL policies issued from 1 April 2011, which insurers must contribute to, so that people can trace historic cover for occupational disease claims such as mesothelioma. For earlier periods, your old certificates may be the only way a former employee can trace the insurer who covered their exposure.