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What is Employers Liability Insurance?

Under the Health and Safety at Work Act 1974 employers are responsible for the health and safety of their employees while they are at work.

This means you must put in place reasonable steps to prevent them getting injured or ill, but you must also put steps in place for them to to be protected if they do sustain an injury or illness – an injury or illness which is the liability of work they’ve undertaken for your business.

Employers liability insurance is that protection for your employees, The Employers’ Liability (Compulsory Insurance) Act 1969 states that your business must have at least a minimum level of insurance cover against any such claims. The insurance protects the employee by ensuring your business has the resources to meet the cost of compensation, should it be paid to the employee for injuries or illness.

Employers liability insurance is compulsory for most organisations (there are few exceptions). Some organisations which are exempt include public and government bodies, NHS and some other government funded projects.

If you have a family businesses, ie if all of your employees are closely related to you (as husband, wife, father etc) or your company employs only ha one employee, who also the owner then you also don’t have to get this insurance.

You can be fined £2,500 every day you are not properly insured. You can also be fined £1,000 if you do not display your certificate or refuse to make it available to inspectors when they ask. It is allowed to display your certificate electronically but you must make sure your employees know how and where to find it easily.

It’s important to note the difference between employers liability, which covers you against claims made by your employees and public liability, which covers you for claims made by members of the public or other businesses, but not for claims by employees. 

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You must be insured for at least £5 million. However, some businesses will realistically need a liability higher than this and you should consider carefully what the best level of insurance is for your business. £10 million is the level that most insurers cover for and this level suits most business. If your business is part of a group, a policy for employers’ liability insurance can be taken out for the group as a whole. In this case, the group as a whole, including subsidiary companies, must have cover of at least £5 million.

You can have more than one policy for employers’ liability insurance. However, the total value of the cover provided by the policies must be at least £5 million.

Under the law in Great Britain you do not need employers’ liability insurance to cover any of your employees who are based abroad (eg if they are on secondment). However, you should check whether the law in the country where they are based requires you to take out insurance or take any other measures to protect your employees. If any of your employees are normally based abroad but spend more than 14 days continuously in Great Britain, or more than seven days on an offshore installation, under the law in Great Britain you will need employers’ liability insurance for them.

One of the most misunderstood areas of this insurance surrounds the insurance and inclusion of non-PAYE workers ie Contractors or labour-only personnel. You are only required by law to have employers’ liability insurance for people who you employ under a contract of service or apprenticeship. Whether or not you need employers’ liability insurance for someone who works for you depends on the terms of your contract with them. This contract can be spoken, written or implied.

It does not matter whether you usually call someone an employee or self-employed or what their tax status is. Whether you choose to call your contract a contract of employment or a contract for services is largely irrelevant. What matters is the real nature of your relationship with the people who work for you and the nature and degree of control that you have over the work they do.

You may need employers’ liability insurance for someone who works for you where:

  • you deduct national insurance and income tax from the money you pay them;
  • you have the right to control where and when they work and how they do it;
  • you supply their work materials and equipment;
  • you have a right to any profit your workers make although you may choose to share this with them through commission, performance pay or shares in the company;
  • you require that person only to deliver the service and they cannot employ a substitute if they are unable to do the work;
  • they are treated in the same way as other employees, for example, they do the same work under the same conditions as someone else you employ. You may not need employers’ liability insurance for people who work for you where:
  • they do not work exclusively for you (for example, if they operate as an independent contractor);
  • they supply most of the equipment and materials they need to do the job;
  • they are clearly in business for their own personal benefit;
  • they can employ a substitute when they are unable to do the work themselves;
  • you do not deduct income tax or national insurance. However, even if someone is self-employed for tax purposes they may be classed as an employee for other reasons and you may still need employers’ liability insurance to cover them.

Credit to the (HSE) website, for which the above bullet points are taken.


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