Employers' liability insurance: the complete guide

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, whether paid or unpaid
• Volunteers you direct -- if you control what they do and how they do it, they may be treated as employees for insurance purposes
• 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:

• All your employees are close family members -- this means every person you employ is 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, you own 50% or more of the shares, and you have no other employees. The moment you hire anyone else, the exemption disappears.
• 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:

• £2,500 fine per day for each day you operate without valid EL insurance. This is not a one-off fine -- it accumulates every day you remain uninsured.
• £1,000 fine for failing to display your EL certificate or for refusing to produce it when an HSE inspector requests it.

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. The rules on display have been modernised:

• Physical display: Pin your certificate on a notice board, office wall, or another location where employees can read it
• Digital display: Since October 2008, you can display the certificate on your company intranet or website instead of (or as well as) a physical copy. This is now the most common approach for businesses with multiple sites or remote workers.
• Inspector requests: You must be able to produce your certificate when an HSE inspector asks to see it. Saying "it's somewhere in the filing cabinet" is not sufficient.

Retaining old certificates

You must keep copies of all EL certificates for 40 years after they expire. This is 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: Slips, falls, machinery accidents, manual handling injuries, burns, cuts
• Occupational diseases: Conditions caused by workplace exposure -- asbestosis, industrial deafness, dermatitis, respiratory conditions, repetitive strain injury (RSI)
• Work-related stress and mental health: Claims for psychological injury caused by excessive workload, bullying, or failure to manage workplace stress
• Legal defence costs: Solicitor fees, court costs, expert witness fees, even if the claim is ultimately unsuccessful

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:

• FCA authorisation: Your insurer must be authorised by the Financial Conduct Authority (FCA). Check the FCA register before buying. Policies from unauthorised insurers do not satisfy the legal requirement.
• Financial strength: Claims may not arise for years or decades. Check your insurer's AM Best or S&P financial strength rating to ensure they will still be solvent when a claim is made.
• Cover level: While £5 million is the legal minimum, £10 million is standard and strongly recommended. If you operate in a high-risk sector (construction, manufacturing, chemicals), consider whether even £10 million is adequate.
• Excess: Some policies carry an excess (the amount you pay before the insurer pays). Check whether this is per claim or per employee, and whether you can afford it if multiple claims arise.
• Claims handling reputation: Read reviews and ask your broker about the insurer's track record for handling EL claims fairly and promptly.

TUPE transfers and EL insurance

When employees transfer between employers under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), their EL cover must be maintained without interruption.

• The incoming employer takes on responsibility for EL cover from the date of transfer
• The outgoing employer remains liable for any claims relating to injuries or illness that occurred before the transfer date
• Ensure your EL policy covers transferred employees from day one -- notify your insurer of any TUPE transfer as soon as it is confirmed

Failure to maintain EL cover during a TUPE transfer exposes you to the same daily fines as any other period without insurance.

The Employers' Liability Tracing Office (ELTO)

The Employers' Liability Tracing Office (ELTO) maintains a database of EL insurance policies to help people trace historic cover when making occupational disease claims. This is particularly important for conditions like mesothelioma, which can develop 30-50 years after asbestos exposure.

• The ELTO database covers policies issued from 1 April 2011 onwards
• For policies before that date, claimants need to contact individual insurers directly or use the Financial Services Compensation Scheme (FSCS) if the insurer has become insolvent
• Insurers are legally required to provide policy data to ELTO

As an employer, ELTO reinforces why you must keep EL certificates for 40 years. Your records may be the only way a former employee can trace the insurer who covered the period of their exposure.

How this connects to your wider obligations

EL insurance does not replace your duty to prevent workplace injuries -- it provides a financial safety net when prevention fails. Your related obligations include:

• Health and safety law: You must assess risks, provide safe systems of work, and maintain a safe working environment under the Health and Safety at Work etc. Act 1974
• RIDDOR reporting: Certain workplace injuries, diseases, and dangerous occurrences must be reported to the HSE
• Record keeping: Maintain an accident book and records of all workplace incidents
• Other insurance: EL covers employees only. You may also need public liability insurance for third-party claims and professional indemnity if you provide advice or services