Most business owners are aware of what Employers’ Liability (EL) is and know that they really ought to have it. But, we find that some of those same owners don’t fully understand why…

It’s a common misconception that Employers’ Liability is only ever needed when staff are employed through a payroll. But that’s not true.

In the UK, any company employing people through payroll is almost certainly required to hold EL (there are very few exceptions). Beyond that, there are many instances where companies are obligated to have EL – and not just limited companies, sole traders too.

In this blog, we’ll look at what EL cover actually is, who might need it, why, and what could happen if you don’t have it when required.

What is Employers’ Liability cover?

Employers’ Liability cover is designed to provide financial protection to employers in the event of their employee suffering injury, illness or death arising out of the course of their employment.

Anything could go wrong, whether it’s as simple as slipping or tripping while at work or more long-term industrial injury or disease – like the famous examples of RSI and asbestosis. It can even cover mental injury, such as workplace stress.

Employers’ Liability cover will pay to defend these legal actions. If the employer is found liable, it will pay damages and legal costs awarded by the courts against the company.

Who needs Employers’ Liability cover and what are the legal requirements?

Employers’ Liability is an important cover to protect individual employees, the workplace, and the state from the costs incurred by employees injured at work.

In the UK, it’s a statutory obligation for some businesses to hold EL insurance to a certain level under the Employers’ Liability (Compulsory Insurance) Act 1969 – with strict parameters on the scope of the cover itself.

So who does this apply to?

• Employees on the payroll: Any business that employs staff, whether that’s on a permanent or temporary basis.
• System of work: Any business with anyone working under their direction, where the business itself is in control of the system of work – including where the work is undertaken, with what equipment, or the method used to complete the work. They don’t have to be paid employees; they could be volunteers, interns, self-employed freelancers, or even those completing work experience.
• Limited companies with multiple directors: Any limited company with more than one director, even if they are both family members.

What cover is required?

The Employers’ Liability (Compulsory Insurance) Act 1969 states that businesses need a minimum of £5,000,000 of EL cover – although most insurers quote £10,000,000 as standard. We have seen a few well-known insurers, like Hiscox, provide cover on the lower basis, but we wouldn’t recommend settling for that limit as it’s generally assumed that the minimum will increase to £10,000,000. A £5,000,000 cover could see you inadvertently contravene regulation.

This coverage amount is to make sure employers can meet the costs of compensation and legal fees in the event of a workplace-related incident – and for most SMEs, it’s relatively inexpensive insurance.

It’s also a legal requirement to clearly display the Employers’ Liability Certificate, demonstrating compliance. This no longer has to be a physical copy – a business can give easy access via an intranet or similar.

What happens if you need EL but you don’t hold it?

A company might not hold EL insurance, never have an incident occur, and never get found out. However, there are serious ramifications if it does get discovered, such as:

• Non-compliance can result in hefty fines imposed by the Health and Safety Executive (HSE), reaching up to £2,500 for each day without proper insurance coverage. Failure to display a certificate can trigger fines of up to £1,000.
• Vulnerability to Civil Liability Claims from employees who have suffered work-related injuries – in these cases, employers would be personally liable for covering costs of compensation, potential media costs, and legal fees. These can be substantial and potentially cripple an SME business.
• You could be in breach of contract with your suppliers if it’s required within the agreement.
• As a director of the business, you could be open to other actions from third parties, including co-directors or shareholders, for not having the correct insurance in place. It could be deemed a Wrongful Act, and any such action against you in your personal capacity wouldn’t be protected by the company’s limited liability status, meaning your liability is not limited.

Want to find out more?

Employers’ Liability cover is a legal requirement for good reasons. It ensures employees are protected and compensated if the worst is to happen – and provides financial protection for employers.

It’s key that you know who needs EL cover. Even if you don’t directly employ staff, you might still fall under the legal requirement to hold Employers’ Liability insurance. To learn more, call us on 0161 533 0411, email info@riskboxuk.com, or fill in our online form, and we’ll get back to you.