Employers’ Liability Insurance – Coverage, Policy and Cost

The more employees you have, the more you can get done. Hiring more employees is usually an exciting sign that your business is growing – but growth doesn’t come without risks. No matter how careful you are, things can go wrong at work. Employers must legally have insurance which can cover compensation costs and other damages if one of their employees injures themselves or falls ill while they’re at work and the business is found liable.

As an employer, responsibility for the health and safety of your employees lies with you. Whether that’s providing a safe and secure working environment, providing your staff with full training or regularly checking tools and machinery, it is down to you to ensure everyone’s safety. When things go wrong and you’re found to be at fault, you will likely have to pay compensation to your employee, as well as foot the costs for your legal fees and theirs.

Legally Required (In Almost All Cases) 

Almost all employers are legally required to have employers’ liability insurance. The minimum requirement currently is £5 million, and the policy must come from an insurer who is authorised by the Financial Conduct Authority.

You can find out whether your insurer is authorised by checking the FCA’s register. It’s imperative that you get employers’ liability insurance as soon as you employee somebody, or you could be liable to pay a significant fine per day that you don’t have cover in place. You can also receive a fine if you do not display your EL certificate, or if you refuse to show it inspectors if they ask to see it.

Even if you only hire staff on a temporary basis, or even if you hire them unpaid, you must still have an EL policy. If they become ill while they are working for you, you may be found liable. If you hire independent contractors who are employed by a different organisation, it may not be your responsibility to provide cover.

However, subcontractors who are ‘labour-only’, who work under your direction and who use your tools and materials are legally considered employees. In this case, it’s your responsibility to provide cover. If you’re working with contractors it’s even more important to check, as your responsibility can vary.

There are several exceptions. Most public organisations, health service bodies and some other organisations funded by public money are not legally obliged to hold employers’ liability insurance. Another exception is often family businesses that only employ close members of family. A close member of family is considered to be a husband, wife, civil partner, parent, grandparent, step-parent, child, grandchild, sibling or half-sibling. The other exception stands if the employee is outside of the UK.

Coverage

EL insurance can cover you if an employee makes a claim for an injury or illness that they suffered as a direct result of their work for you. Examples could be if an employee trips over a trailing phone wire and breaks their arm, slips over on a recently-mopped floor, or sustains an injury on your equipment. If you are found liable, employers’ liability is designed to cover the cost of settling the claim, including compensation pay-outs as well as legal fees, should the case go to court.

If you do end up in legal proceedings with a member of staff, you may have to pay the employee a compensation settlement. This amount can consist of their medical fees as well as the income they have lost due to not being able to work, as well as additional damages.

Employers’ liability insurance will cover the compensation pay-out up to the limit of the policy. While the legal minimum for most business is around £5 million, many businesses choose to opt for a higher level of cover, as it can pay for:

• Medical fees
• Legal costs (for both you and the claimant)
• Loss of income
• Any other damages.

Employers’ liability exists to cover you against claims made by anybody within the company. This can include:

• Full-time and part-time employees
• Self-employed contractors you hire
• Temporary staff
• Apprentices and volunteers
• People on work experience placements.

Employers’ liability can cover your business for anybody working in connection with your business or for your business directly. Some policies can protect against claims made by volunteers and self-employed persons who suffer an injury or get sick during their time at your company.

If you have interns or accept students on work experience placements, you must check whether you need to buy additional cover or whether your existing policy can cover them. The same goes for independent contractors and freelancers.

Common Exclusions

There are several eventualities where you may find that you are unable to make a claim on your employers’ liability insurance, such as:

• If you don’t notify your insurer of any claims made against you within a given time limit
• If the claim should have been covered by motor insurance, but you didn’t have a policy in place
• If the act that caused the illness or injury was deliberate
• If the illness or injury happened abroad.

Employers’ Vs. Public Liability Insurance

Both employers’ liability and public liability insurance are products taken out by business owners to protect themselves, their business and their employees if something goes wrong. While these two types of insurance cover very similar claims, the key difference lies in who is making the claim against you or your business.

If somebody inside the company makes the claim, such as an employee, member of staff, an intern or a volunteer, employers’ liability can cover the costs of the claim. You are responsible for their health and safety, and if they sustain an injury or fall sick, you are likely to be found liable if at fault. Employers’ liability covers you for the legal fees and any compensation payouts.

If somebody outside the company makes a claim, this is where public liability insurance steps in. This could be a postal worker who trips up on the steps on the way into your building, or a member of the public visiting your premises and snagging themselves on a loose nail sticking out the doorframe. Public liability insurance is designed to protect you and your business if a member of the public or another third-party makes a claim against your business for accidental injury or property damage.

Similarly, if you or your employees carry out work on other peoples’ premises or in the public sphere, any claims of accidental damage or injury caused by your staff members to members of the public could come under public liability insurance.

While employers’ liability insurance is a legal requirement, public liability insurance is not. However, as the two cover very similar events and circumstances, which can reach thousands or even millions in cost, many advisers highly recommend that business owners take out both forms of cover.

Calculating Cost

How much you pay depends on several factors. Firstly, how many employees that you have. Secondly, the type of business that you operate will have a large bearing on the price. If your employees work with lots of dangerous machinery or hazardous substances, you will likely pay a higher premium than for a company based in an office setting.

Another factor affecting cost is whether you purchase employers’ liability insurance as a standalone policy. Many insurance companies offer employers’ liability in conjunction with other types of insurance typically public liability cover.

Assessing Coverage Needs

In the UK, it’s a legal requirement that employers have at least £5 million in employers’ liability cover. This may seem excessive, but the costs can quickly stack up. If an employee sustains a serious permanent injury that prevents them from working, you might be taken to court to pay a huge compensation fee. Not only would you be liable for any medical expenses, a compensation payout which includes the employee’s loss of earnings from their injury, which could reach hundreds of thousands, but you would also have to foot the bill for both yours and their legal fees if you are liable.

Another thing to consider is how long a policy you choose. Employees can still make claims after they have stopped working for your company. If they start to notice symptoms of an illness or injury that they think they contracted while working for you, you may be found liable, even if they submit a claim months later.

What if I Only Employ Independent (Self-employed) Contractors?

A contractor is not your employee if they work for themselves. However, whether a person is self-employed or an employee depends on HMRC’s opinion, based on their strict guidelines of what self-employment means. Even if you hire a contract on the belief that you are hiring a contractor, if HMRC views them as an employee then you must have employers’ liability insurance in place.

HMRC defines a self-employed person or contractor as somebody who runs their business for themselves. They have the right to hire someone else to carry out the work for them, and they can decide what work to do and when, as well as where they do it and how they carry out the work.

Their employer also agrees a fixed price for the work, no matter how long it takes to finish. Finally, the contractor can work for more than one client. If you are hiring only contractors, employers’ liability insurance may not apply to you. However, it is essential that you check HMRC’s definition so that you don’t find yourself unexpectedly liable if something happens.

Policy Best Practice

Before you buy a policy, make sure you consider the following points.

• Be as honest as you can. Holding anything back from an insurer will only harm you in the long run. If you have withheld information, they may not pay out in the event of a claim. Or worse, it could invalidate your whole policy, leaving you without cover and potentially liable to legal action.
• Thoroughly read your policy. Make sure you are fully aware of what is and isn’t covered by your employers’ liability insurance policy. You need a policy which covers your company’s requirements and the number of employees that you have.
• Mitigate the risks. As an employer, you have a responsibility to make your employees’ working environment as safe as possible. Consider all the risks in your workplace for you, your employees and the general public, and take steps to make it as safe and secure as possible. Comply with all the health and safety and risk management obligations, and make sure that staff receive full training as well as all the information they need to carry out their jobs safely.
• Don’t forget to display your certificate. Once you take out an employers’ liability insurance policy, you will receive a certificate. You must display this certificate so that all of your employees can view it. This may be displayed digitally, but you must be confident that all of your employees understand where it is and how to access it.

Final Thoughts and FAQs

Even the most conscientious employers can find themselves liable when things go wrong. While ensuring that the workplace is safe for your employees is your responsibility, it isn’t possible to completely eliminate risk. This is why employers’ liability insurance is so important, not only to cover businesses financially, but to ensure that their employees receive the right protection and care if they sustain an injury or fall ill at work.

Employers’ liability insurance is a legal requirement for most businesses, so you must take out a policy when you take on staff. Many employers get caught out when they employ people in varying capacities, such as contractors or interns. Ensure that your insurance covers all those who work in conjunction with your business so as to protect both your company financially, and the safety of your valued team.

• Am I Covered for Work Away From My Business Premises? – Yes. Employers’ liability extends to claims arising from business activities taking place off site, for example in a customer’s home or in public.
• Do I Need Employers’ Liability Insurance for My Charity? – If you employ paid staff, you must get employers’ liability insurance at your charity. This protects you in the same way that it protects business owners, in the event that somebody injures themselves or falls ill and makes a claim against you. Just as if you were a company, you must display your insurance certificate in a prominent place on your charity’s premises so that all members of staff and volunteers can see it.
• Why Are Employer Reference Numbers Important? – Any business registered with HMRC receives an employer reference number, which is used to identify the employer for tax purposes. It tends to be used for end-of-year PAYE returns, but many employees also need it when applying for tax credits. You usually need to provide your employer reference number when you buy or renew your employers’ liability insurance.
• What About Maritime Employers’ Liability? – Maritime employers’ liability insurance is a specialist policy, most commonly taken out in the US, which is designed to provide cover for employees who may be required to operate on or from vessels where their employer does not own or operate the vessel. Having insurance of this kind is often stipulated in a contract with a sub-contractor. Some providers offering maritime employers’ lability with global reach include Thomas Miller Specialty and Pantaenius.
• Do I Need to Keep Copies of Out-of-date Certificates of Employers’ Liability Insurance? – Since 1^st October 2008, employers are no longer required by law to keep copies of out-of-date certificates. However, HSE recommends that employers keep a record of their employers’ liability insurance. Symptoms of diseases can appear years, or even decades after exposure, and former employees may choose to make a claim against their employer for the time they were exposed to the cause of their illness, even if they no longer work for you. As an employer, if you don’t have the necessary insurance details, you risk being liable to paying the costs yourselves.
• Do I Need Employers’ Liability Insurance if My Employees Work Abroad? – If any of your employees are usually based in England, Scotland or Wales, then you must have employers’ liability insurance. If your employees are normally based abroad, then you do not need employers’ liability insurance. However, if this is the case, you should check the requirements of the country in which your employees are based to see if you are legally required to provide any other cover. You will also need to arrange employers’ liability insurance for them if they spend more than 14 days continuously in Great Britain.
• What Other Forms of Business Insurance Do I Need? – While its not required by law, many advisers strongly recommend that you get public liability insurance as a business. Public liability insurance covers you against the same kinds of claims as employers’ liability cover, but for claims made by members of the public or other third parties. Other forms of cover to consider are buildings and contents insurance, business interruption insurance and professional indemnity insurance.