Do I need employers’ liability insurance?

In this series we’re demystifying the subject of business insurance, looking at the types of insurance your business should consider taking out. Despite the wide variety of policies available, however, only one type of insurance is compulsory for most businesses: employers’ liability insurance.

Employers’ liability insurance protects employees if they are injured as a result of an accident at work or if they become ill as a result of their work. If the employer is responsible and compensation has to be paid, employers’ liability insurance aims to provide funds to meet the liability. It can also cover the legal costs in dealing with a claim.

Cover from an approved insurer of at least £5 million is required by the Employers’ Liability (Compulsory Insurance) Act 1969 and various related regulations. Most policies provide standard cover of £10 million . While that might sound like a lot, claims may consider lifetime care required by injured employees and their lost income. This costs can be particularly severe if several members of staff are involved.

Where you employ workers you are required to hold such insurance unless one of the following exemptions applies:

• You have a family business, which is not set up as a limited company.  For this to apply, all of your employees  must be closely related to you – which includes a husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandchild, stepchild, brother, sister, half-brother or half-sister.
• You have a company where you are the only employee and you own 50% or more of the company’s issued share capital.
• You are a public organisation e.g. a government department or agency, local authority, police authority or nationalised industry.
• You are a health service body, e.g. National Health Service trust, health authority, primary care trust or Scottish health board.

In addition to having the cover you will need to display a copy of the certificate of insurance prominently at all work places.  It may be displayed electronically if all employees have easy access to it at work and know where to locate it.

The Health and Safety Executive (HSE) – www.hse.gov.uk – enforces the law on employers’ liability insurance and HSE inspectors can check that you have adequate cover. They may also ask to see your certificate of insurance and other insurance details. There are significant penalties for non-compliance:

• You can be fined up to £2,500 for each day for which you do not have suitable cover; or
• You can be fined up to £1,000 if you do not display the certificate of insurance or refuse to make it available to HSE inspectors.

In a survey carried out for the HSE in 2012 around 5% of employers required to hold such insurance were found not to have any. Amongst those thus in breach of the law, employers with less than five employees or that had been in business for less than two years were most likely not to hold employers’ liability insurance.

If you do not currently have employers’ liability insurance and have employees you should take action now. If you already have insurance in place, it may still be a good idea to review it. More generally, regular risk assessments and a proactive approach to compliance with the health and safety regulations for your industry will hopefully reduce the likelihood of any future employers’ liability insurance claim.