Do You Need Employers' Liability Insurance?

What is liability insurance and specifically what is Employers' Liability Insurance?

A liability insurance policy covers you for legal costs and damages if an incident arises and you or your business can be held legally responsible for it.

Employers' Liability insurance is a compulsory insurance for the majority of businesses employing staff (although there are some exceptions). So what does it do and cover?

If you employ staff then Employers' Liability insurance is compulsory. Your insurance policy should cover at least £5 million. There is a fine of up to £2,500 for every day a business does not have the appropriate insurance and this law is enforceable by the Health & Safety Executive or HSE for short. It is also a requirement to display the Employers' Liability Certificate clearly either in paper format or electronically, say on a employers' intranet so employees can read this easily. This policy should cover all your employees in England, Scotland, Wales & Northern Ireland.

An employee can be defined as an employee if they under a contract of service, if you deduct national insurance and tax from their salary, you control when and where they work and they cannot employ a substitute when they are unable to work.

To be exempt from this insurance, your business should not be a limited company and you are the only employee or you only employ close family members. If you are a limited company and there is only employee who owns 50% or more of the share capital (say your wife) are also exempt from the compulsory employers liability insurance. For all other business you will be required to hold this insurance policy.

So what does employers' liability insurance cover. It is an insurance policy which will meet the costs of damages and any legal fees should an employee be injured or become ill at work through the fault of the employer. For example if an employee has an accident and suffers an injury through the negligence of their employer, ie faulty machinery or not providing safety equipment.

The insurance policy will not just cover the cost of damages, compensation and legal costs but will also cover the NHS costs for hospital treatment and the ambulance costs which is claimed when a personal injury compensation claim is paid.

The policy does not only cover for claims from current employees at the time of an incident. It covers for any claim from a former employee where the employer is at fault. This can include any health problems and diseases which appear many years on. For this reason it is essential that a business keeps all past insurance certificates and details of your employers' liability insurance held as some claims can happen years or decades on following exposure to the cause for any former or current employees. If you fail to hold the necessary insurance you may find that you have to meet the costs of these claims yourself.

As you will see from the above, it is highly likely that your business is liable to hold an employers liability insurance and even if you are exempt, like many others you may see the advantage at having an employers liability insurance rather than taking the risk. If an accident occurs, it can become very costly.