Employer's Liability Insurance

What is Employer's Liability Insurance?

If an employee should be injured at work or become ill as a result of work and decides to sue you for compensation, employer's liability insurance ensures that there is at least a minimum level of insurance to cover the claim. Failure to take out an insurance policy which covers the claim can result in you being fined.

How Much Cover do I Need?

You must be insured for at least £5 million but once you've assessed your risks and liabilities you may decide that you need more than this. Most insurers offer cover of at least £10 million. You are able to split the cost of cover between different insurance companies as long as the total is at least £5 million. Remember that insurance cover includes costs so you may need to buy additional insurance to cover this.

What Conditions Will Apply to Your Business?

As with any insurance, there will be a number of conditions attached to the policy which will be tailored to your business. Certain conditions, however, cannot be imposed. Your insurer cannot refuse to pay compensation:

• Purely because you have not provided adequate protection against injury or disease
• You cannot provide certain information to the insurer
• You have done something they told you not to do
• You haven't done something they told you to do
• You have not met any legal requirements connected to the protection of your employees

However, if you haven't complied with the health and safety measures the law requires - risk assessments, reporting accidents etc., then the insurer could end up suing you to recover the cost of compensation.

How do I Tell my Employees About The Insurance?

Your insurer will give you a certificate of employer's liability insurance. This must clearly state the minimum level of cover provided and the companies it covers. You must display this certificate where employees can easily read it.

How do I Know if I Need to Take Out Employer's Liability Insurance?

You MUST take it out if some or all of the following conditions apply to you and your employees.

• You deduct National Insurance and tax from the money you pay them
• You have the right to control where, when and how they work
• You supply most materials and equipment
• You have rights to the profits and suffer the losses your employees make
• You hire that person to do the job and then cannot substitute another to take their place
• They are treated the same as other employees, i.e. they have the same terms and conditions

You DO NOT need employer's liability insurance if some or all of the following conditions apply to you and your employees.

• You do not deduct tax or National Insurance (though this alone is not sufficient proof)
• They do not work exclusively for you
• They supply most of the materials and equipment to do the job
• They are clearly in business for personal benefit
• They can employ a substitute whenever they cannot work themselves

You normally don't need to insure volunteers but you will need cover for students who work unpaid, participants taking part in a youth or adult training programme, or a school student on a work experience programme. If this applies, contact your insurance company and consider taking out insurance as they may be classed as employees.

You only need to insure domestic help such as gardeners or cleaners if they work exclusively for you. If they have more than one client, you are probably exempt.

Are There Any Other Exemptions?

Most public organisations such as government departments, local authorities, health service bodies and publicly financed organisations such as passenger transport executives are exempt.

The one main exemption applicable to small businesses is the one relating to family businesses. If your employees are close relations, (parent, child, spouse, grandchild etc.), you do not have to take out the insurance unless your family business has been incorporated into a limited company.

How Long do I Have to Retain Certificates of Insurance For?

For 40 years after their expiry date. This is because claims for diseases can be made many years after the disease is caused. You must make these available to health and safety inspectors upon request. This requirement only applies to policies in force on 31 December 1998 or later but you should retain any information relating to previous insurance policies just in case.

What Happens if I Don't Have The Insurance?

You can be fined up to £2500 for any day you are without the insurance. Failure to display the certificate or be able to show it to health and safety inspectors can lead to a £1000 fine.