A Guide to Employers’ Liability Insurance

If you employ staff in the UK, employers’ liability insurance is one of the most important policies you’ll need. It’s designed to protect your business against the cost of compensation claims if an employee becomes ill or is injured as a result of the work they do for you. The policy covers both the legal fees for defending a claim and any compensation awarded to the employee.

For the vast majority of businesses, this isn’t just good practice - it’s a legal obligation. The requirement is set out in the Employers’ Liability (Compulsory Insurance) Act 1969, and failing to comply can lead to significant financial penalties. Understanding your responsibilities is the first step to ensuring your business and your team are properly protected.

Is Employers’ Liability Insurance a Legal Requirement?

Yes, as soon as you become an employer in the UK, the law requires you to have employers’ liability insurance in place. The definition of an ‘employee’ under the 1969 Act is wider than you might think. It doesn’t just cover full-time and part-time staff on your payroll.

The term also includes temporary staff, apprentices, volunteers, and individuals on work experience placements. It can even extend to self-employed contractors if they work under your business’s direction and use your equipment, rather than their own. If you are responsible for someone’s health and safety while they work for you, it’s highly likely you need this cover.

How Much Cover Do I Need?

UK law mandates that your business must be insured for a minimum of £5 million. This legal minimum ensures that even substantial claims can be met, protecting both your business from financial ruin and your employee from being left without compensation.

In practice, however, most insurers provide £10 million of cover as standard. This higher limit offers greater peace of mind and is often recommended, particularly for businesses operating in higher-risk sectors like construction or manufacturing, where the potential for serious injury claims is greater. Assessing your specific business risks will help you decide if you need more than the standard cover.

What Are the Penalties for Not Having Cover?

The consequences of not having the correct insurance are severe. The Health and Safety Executive (HSE) is responsible for enforcement and can issue a fine of up to £2,500 for every single day that your business is uninsured. These fines can accumulate rapidly, posing a serious threat to your company’s financial stability.

Furthermore, you are legally required to make your employers’ liability insurance certificate accessible to your employees. This means either displaying it in the workplace or providing it in a digital format that staff can easily view. If you fail to display the certificate or refuse to show it to an HSE inspector upon request, you can be fined an additional £1,000.

Who Is Exempt from Needing Employers’ Liability Insurance?

While the rules apply to most employers, a small number of businesses are exempt from the legal requirement. It’s crucial to be certain you fit into one of these categories before deciding not to take out a policy.

• Family businesses, but only if the business is not a limited company and all employees are close relatives. A close relative is defined as a spouse, civil partner, parent, grandparent, child, grandchild, sibling, or step-sibling.

• Limited companies that have only one employee, who must be the director and own 50% or more of the company’s issued share capital.

• Most public organisations, including government departments, local authorities, the NHS, and other bodies financed by public funds.

• Businesses that only employ staff who are based abroad. The Act applies to employees working in England, Scotland, and Wales.

What Does Employers’ Liability Insurance Cover?

Should an employee - or even a former employee - make a claim against your business for a work-related illness or injury, your employers’ liability policy is there to cover the associated costs. This includes both sudden accidents that happen in the workplace and long-term health conditions that may develop over many years due to working conditions, such as respiratory diseases or hearing loss.

If a claim is successful, the policy will typically pay for:

• Compensation payments awarded to the employee. This can cover their medical costs, rehabilitation expenses, and loss of income if they are unable to work.

• Legal fees and other court costs incurred while defending the claim, whether it is ultimately successful or not.

How to Get the Right Cover

You can purchase employers’ liability insurance either directly from an insurer or through a specialist insurance broker. It is often bundled with other essential policies, such as public liability insurance, into a single business insurance package. For a comprehensive overview of different policy types, you may find our ‘The Ultimate Guide to Business Insurance Coverage’ helpful.

It is a legal requirement that your policy is provided by an ‘authorised insurer’. You can confirm an insurer’s status by checking the Financial Conduct Authority (FCA) register. If you need help navigating the market, a broker registered with the British Insurance Brokers’ Association (BIBA) can provide expert advice and help you find a suitable policy for your needs.

Protecting Your Business and Your People

For almost every business owner with staff, employers’ liability insurance is not a choice - it’s a fundamental legal and financial safeguard. The potential cost of a claim, combined with the heavy fines for non-compliance, makes it an essential part of your risk management strategy.

By securing the right cover, you not only protect your business from potentially crippling costs but also fulfil your duty of care to your employees, ensuring they have a financial safety net if the worst should happen at work.