Ultimate Guide to Employers' Liability Insurance for Limited Companies

The employers' liability insurance covers your company if a worker claims work-related illness or injury. The cover is a law requirement which UK companies must adhere to.

Many contractors ask if they need this cover, and Incorpuk will answer this question. This guide covers what employer liability insurance is, its importance, and what will happen if you don't have it. We'll also look into who needs it to help you understand your legal obligations around it.

What's Employers' Liability Insurance?

As the employer, you bear the legal responsibility for ensuring the health and safety of your employees during their work hours. Consequently, if an employee sustains an injury or falls ill due to work-related activities, they may seek compensation from you.

The UK Employer's Liability (Compulsory Insurance) Act 1969 is a law that was enacted to ensure companies maintain compulsory insurance coverage to safeguard against claims from employees for injuries or illnesses sustained at work.

The Employers' Liability (Compulsory Insurance) Act 1969 mandates that most businesses must acquire a minimum level of insurance coverage. This ensures they can cover any compensation expenses arising from employee illness or injury, on-site or off-site.

However, employees' injuries or illnesses related to vehicle accidents or traffic collisions occurring when an employee is working for the company will be covered separately by the motor insurance package.

Employer liability insurance covers your company's claims against the business made by your employees only. So, this insurance will cover your business from claims made against it by other companies or public members. For these sorts of claims, you must have public liability insurance. Public liability insurance isn't a legal requirement for most UK companies.

What types of Businesses does the Employers' Liability (Compulsory Insurance) Act 1969 apply to?

The legislation covers most UK-limited companies, guaranteeing that owners and employees are always legally and financially protected.

Which Company is exempted from having Employers' Liability Insurance?

But exceptions exist to this regulation. Your company might be relieved from fulfilling its insurance obligations if you fall into one of the following categories:

1. A public entity, such as an agency or government department, a local authority, a nationalised industry, or a police force
2. A limited company where the sole employee is also the owner, and that owner possesses 50% or more of the company's issued share capital.
3. A health organisation entity, such as a National Health Service trust, primary care trust, health authority, or Scottish Health Board
4. A family-owned business that exclusively hires individuals who are relatives of the owner, including spouses, parents, children, civil partners, half-siblings, and other familial relations
5. An entity funded by public resources, such as a magistrates' courts committee or passenger transport executive

The exemption for family businesses is somewhat ambiguous and does not apply universally to all family businesses registered as limited companies. However, we'll look at that shortly.

Who does the Employers' Liability Insurance Cover?

If you've entered into a service or apprenticeship agreement with someone to work on your company's behalf, you must have employers' liability insurance for that individual. However, it's more complicated than that.

Whether you need the employers' liability insurance for your employees depends on the contract between them and your company.

Remember, contracts can be written, verbal, or implied agreements. The terminology used to refer to an individual as either an employee or a self-employed worker, and whether the contract falls under a contract of employment or not, is inconsequential.

What matters most is the relationship between you two and how much you control how they work and not their tax status.

It's advisable to obtain employers' liability insurance whenever you have individuals working for your business under the following circumstances:

1. You deduct income tax and national insurance contributions from their earnings
2. You have control of where they work, how they work, and when they work
3. You treat a person like an ordinary full-time employee; for instance, they work as full-time employees in the same working conditions.
4. You claim the profit your employees make, whether whole or part. Even if you share profit with workers as commissions
5. You supply them with working materials and equipment to do their tasks.

Suppose you require someone to provide a particular service, and they cannot arrange for someone else to perform that service in their absence. In that case, you must have employers' liability insurance for that person.

Which Individuals should I exclude from Employers' Liability Insurance?

There are employees you don't need to cover for working in your company. They include:

1. Workers that don't work for your business entirely
2. Individuals operating their own business primarily for their own gain
3. Your company supplier. A person supplying material that your company needs
4. A person who can employ a substitute to work on their behalf when they're unable to work
5. Your business doesn't deduct income tax or NIC (Even if an individual working for your company is classified as self-employed for tax purposes, you might still need to provide them with employers' liability insurance for other legal considerations)

Additionally, you don't require additional employer liability insurance for volunteers or:

• Students who voluntarily perform unpaid work for your company
• People not employed but are carrying out training programme with your company
• A student participating in a work experience program through their school

Not taking additional employers' liability cover in these scenarios is because most insurers include coverage for such situations as part of standard employers' liability insurance policies.

You typically don't need to notify your insurer when having volunteers or students for unpaid work experience unless they will be in your company for a prolonged period or perform tasks outside the scope of your company's usual operations.

In the UK, there's typically no legal obligation to obtain employers' liability insurance for domestic workers like gardeners or cleaners, provided they work for multiple employers. But this exception also usually applies to childminders, unless they exclusively work for you.

UK law mandates that you take employer liability insurance if you're a sole employer.

What happens when I don't have Employers' Liability Insurance?

If you don't have Employers' Liability Insurance when legally required, you risk penalties from the Health and Safety Executive (HSE). You may pay hefty fines of £2,500 for each day of non-compliance.

You must provide your employees with your Employers' Liability Insurance certificate by displaying a printed copy where they work or making it accessible digitally. Failure to provide the certificate to the HSE or ensure easy access for your employees can result in a fine of £1,000.

Do I need Employers' Liability Insurance for My Employees Abroad?

Yes, if your business employs UK workers living in the UK or abroad, you must have employer liability coverage.

However, not all UK-limited companies need employers' liability cover to insure employees working abroad, even if the work overseas is part of a secondment arrangement. However, it doesn't wholly exempt you from legal insurance obligations for those employees working abroad.

Check with the country's local authority where your workers reside and find any requirements your business must fulfil.

Suppose your employees abroad spend 14 continuous days in the United Kingdom or over a week on an offshore installation. In that case, the UK law mandates that you obtain employer insurance for those employees.

Do I need Employers' Liability Insurance for My Freelancers, Contractors, and Subcontractors?

Ultimately, the terminology used to describe individuals working for your business doesn't determine their classification. If the HSE considers them as employees based on factors such as you're providing work materials, controlling their work conditions, or treating them as employees, you'll need insurance.

Which Regulations Govern the Type of Insurer I Obtain for Employers' Liability Insurance?

There are no strict rules regarding the type of insurance company you must use to cover your company against employee illness or injury. Just use an authorised insurer to avoid breaking the law.

An authorised insurer is any company or individual working under the Financial Services and Markets Act 2000 terms and is on the authorised insurance register of the Financial Conduct Authority.

In which Situations will Employers' Liability Insurance not Cover Me?

Before taking employers' liability insurance, know you are entering a contract with the insurer that highlights scenarios where they can pay the compensation. The circumstances cover specific activities that are company-related to its normal activities.

However, some conditions may limit the coverage the insurer needs to pay.

Conditions under which your authorised insurer might opt not to provide compensation may involve the following:

1. If your business fails to offer adequate protection for employees from injury or illness
2. Failure to maintain specific records or provide them to your insurer
3. Acting against your insurer's instructions
4. Failure to fulfil obligations advised by your insurer
5. Non-compliance with legal requirements related to employee protection

This list isn't exhaustive; many insurers may refuse to pay when you fail to do a risk assessment or fulfil statutory health and safety mandates.

If coverage is in place, your insurer must fully compensate any agreed-upon compensation package for your employees or ex-employees and any court-awarded compensation.

Your insurer cannot enforce conditions requiring your company, workers, or ex-workers to contribute to the claim. However, your business can voluntarily agree to reimburse part of any compensation paid to employees or former workers.

How Much Employer Insurance Coverage will My Business need?

The UK law mandates that to have employer liability insurance, you must have a minimum coverage of £5 million. Depending on the nature of your business, you may need a higher policy, with many UK insurers offering reasonably priced coverage exceeding £10 million.

If your business is part of a group, you may take a single employer liability coverage product to cover the entire group of businesses. In such cases, the group needs a minimum of £5 million in insurance coverage.

Note that your company may have more than a single employers' liability coverage if you want, as long as the total value insured is £5 million.

Do I Inform My Workers I have the Employers' Liability Insurance?

You must tell your employees that employers' liability cover insures your company.

Every time you obtain or renew the insurance policy, the insurer provides you with a company certificate of employer liability insurance. The certificate shows the minimum level of insurance provided by the policy. They will also include the name of the business or companies covered.

The law requires you to display a copy of the employer's liability insurance certificate somewhere your employees can see it.

You don't have to display the certificate in the company's staff break room. Companies need to display their cover certificates electronically since 2008. However, if you display it electronically, ensure your employees know how they can access it. You may share the link in the digital staff handbook or any other electronic display method that is most used.

You can use the same certificate in all your company locations for employees working in

1. Northern Ireland
2. England
3. Isle of Man
4. Wales

You mustn't display the certificate when your employees work offshore installations at each location. However, if your employees request to see the certificate copy, you need to provide them with the copy within a maximum of 10 days.

Do not display the out-of-date insurance certificates. But it's advisable to maintain a complete record of these insurance policies. This is because some illnesses may take decades to appear, and your employees and ex-employees may make a claim against your business for the time they were exposed to the disease. Remember, this could fall under the outdated insurance policy period.

If your business encounters this situation and lacks the necessary information to file a claim, you might be responsible for covering the allegations personally. That's why maintaining thorough records is a wise practice.

Final Thought

Although some exceptions exist for taking out employers' liability insurance, many UK employers must have this coverage. It's mandatory for most businesses in the UK, but it's beneficial to your company and your employees, so ensure you stay compliant. Numerous UK-authorised insurance companies provide customised employers' liability insurance packages at reasonable prices. This coverage's protection could prove invaluable for your business at unforeseen times. If you have any questions on employers' liability insurance for limited companies, don’t hesitate to contact us here, and we’ll do everything we can to help.