What is employers’ liability insurance?

When conducting business, it is essential to have the correct amount of cover for you and your company. In particular, you as an employer should provide insurance for yourself and any employees working for you. …

When conducting business, it is essential to have the correct amount of cover for you and your company. In particular, you as an employer should provide insurance for yourself and any employees working for you. In some cases, insurance can be a legal requirement.

One of the main types of insurance for business owners is employers’ liability insurance. In some cases, this is required by law. This protects you against any claims and covers your employee if they are hurt or injured at work.

This article will give an in-depth overview of employers’ liability insurance. It will show who requires this by law, who is exempt, and what it covers.

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What is employers’ liability insurance?

Employers liability insurance is a type of insurance that covers you for compensation costs. In particular, it gives you financial cover if an employee claims against you if they are injured or fall ill as a result of work.

Despite your best health and safety efforts, sometimes workplace injuries will happen anyway. Work-related illness is another thing that can occur that you as an employer should consider. Another thing to remember is that injury can take place not just from a single event like an accident. It can also come from repetitive strain injuries such as when you are forced into a poor postural position for long periods of time.

High-risk repetitive strain injury jobs include:

  • Food pickers
  • Supermarket checkout
  • Data entry administrators and programmers
  • Warehouse workers
  • Cold food processing operatives
  • Workers on assembly lines
  • Lorry drivers
  • Factory machinists
  • Decorators and painters
  • Sewing machinists
  • Builders and manual labourers
  • Manual labourers using vibrating tools
  • Labourers working with heavy lifting

If an employee sues for any of these reasons, it could be extremely costly. Compensation claims can be huge, and even if you win a lawsuit, you will still need to pay legal costs. Employers liability insurance covers you financially against a compensation claim for injury or illness.

What specifically does employers’ liability insurance cover?

As discussed, employers’ liability insurance provides expenses for legal costs. Specifically, it provides money for legal fees for defending compensation claims and settling claims. This insurance will also ensure any lost income of an employee as a result of illness or injury at work is covered.

Any medical bills that arise from illness or injury are also covered by employers’ liability insurance. Any settlements from compensation claims are also covered by this insurance.

Is employers’ liability insurance required by law?

Most businesses that have employees will need employers’ liability insurance. The minimum amount of cover required is £5 million. However, most insurance policies start at £10 million. Failure to supply this legal requirement can result in a fine of £2,500 for each day you are uninsured.

Failure to display employers’ liability insurance certificates, especially when asked by inspectors, can result in a £1,000 fine. As this is compulsory insurance, for peace of mind, you can check the legitimacy of the insurance provider with the financial conduct authority. Insurance is also needed for volunteers and subcontractors if they’re working under your supervision. Remote workers who are working from home also require employers’ liability insurance.

There are also a number of exemptions from being legally required to provide employers liability insurance.

Who is exempt from employers’ liability insurance?

In accordance with the employers’ liability act 1969, section 2, employers are not required to insure family members. This includes:

  • Husbands and wives
  • Civil partners
  • Fathers and mothers
  • Grandfathers and grandmothers
  • Step-fathers and step-mothers
  • Sons and daughters
  • Grandsons and granddaughters
  • Stepsons and stepdaughters
  • Brothers, sisters, half-brothers, and half-sisters

Also, employers are not legally obliged to provide employers liability insurance for employees that are not based in the UK. The exception is that if they spend more than 14 consecutive days in Great Britain or seven on an offshore installation, employers’ liability insurance is required.

As to be expected, sole traders who do not have any employees do not need this type of insurance. Moreover, a limited company with one employee who owns more than half the company shares is also exempt.

Most public organisations are exempt from providing employers liability cover, including:

  • Government departments and agencies
  • Local authorities
  • Police authorities
  • Nationalised industries; health service bodies, National Health Service trusts, health authorities, primary care trusts and Scottish health boards.

Other businesses, and organisations financed by public funds, are not legally required to provide employers liability insurance. For example, passenger transport executives and magistrates courts committees.

How much does employers’ liability insurance cost?

The price of employers’ liability cover depends on many different variables. Largely the cost will depend on how many employees the business has. It goes without saying that small businesses with only a few employees will cost less than large companies with many employees.

Also, companies that perform more dangerous jobs can expect more expensive employers’ liability cover than less dangerous jobs. For example, construction has been shown to be the most dangerous occupation field, with 39 fatalities between 2020 and 2021. It stands to reason that this would fetch a higher insurance cost than less dangerous occupations.

What other kinds of business insurance might I need?

Many businesses may require additional cover to make sure they are properly insured. This includes public liability insurance. Public liability insurance provides protection against any third party claims. This covers legal fees if injury, death, or property damage is caused against a third party. This also covers the compensation amount in the event of a claim.

Product liability insurance. This covers you financially if anything you sell a product that causes illness, injury, or property damage. This is still true if you did not manufacture the product.

Business interruption insurance. This covers a business for lost income in the event of a business interruption, such as a flood or a fire.

Business building insurance. If your business operates out of one or more premises, you can take out business building insurance to cover damage to the building.

Business vehicle insurance. Depending on the nature of the business, different types of vehicle insurance is needed. For example, companies may need courier insurance or haulage business van insurance.

Cyber insurance. It may be wise to protect your business with cyber insurance. This covers your business financially against cyber attacks.

Certain industries like construction may require more specialist business insurance cover. This includes:

  • Tools insurance
  • Stock and materials insurance
  • Plant (machinery) insurance
  • Contract works insurance

Employers liability insurance: Summary

Employers’ liability insurance is essential for companies with one or more employees. If any of your staff are injured, or become ill, as a result of work completed for you, they may be able to claim compensation against you. ELI will pay compensation to former employees with a rightful claim.

Injury claims can be made, not just for a single event like an accident, but also for repetitive strain injuries. Jobs such as food picking often cause this type of long-term injury. This is because it involves repetitive movements in poor postural positions.

It will also cover legal costs if you fight the case in court. An employee’s earnings lost as a result of injury, or illness are also paid out. Medical bills that arise as a result of injuries or illnesses at work are also covered by ELI.

Under UK law, this is a legal requirement for most businesses. The minimum amount of coverage is £5 million, although most employers choose a policy of at least £10 million. A hefty fine of £2,500 per day can be issued if the correct cover is not obtained. A further £1,000 fine can be issued if you fail to show insurance documents.

A number of companies and people are exempt from this cover. For example, if you employ close family members, you are not required to take out employers liability insurance. As well as direct family members, it also includes family members that are not biologically related, such as stepbrothers, or stepparents.

You also do not need this level of cover for employees that do not reside in the UK. This is unless they spend 14 days or more in the UK, or seven days on offshore installations.

Sole traders do not need EDI, as well as limited companies with an employee who is also a majority shareowner.

Certain public bodies also do not require employer’s liability insurance. This includes bodies such as the police and government departments. Other publically financed businesses such as passenger transport executives, and magistrates courts committees, are not required to get this level of protection.

Remote workers, volunteers, and subcontractors working under your supervision, still need employers’ liability insurance.

The cost of an insurance policy is decided by a number of different variables. Perhaps the main determining factor is the number of employees used in the business. Also, the level of danger associated with the job is another factor. More employees, and a higher level of risk, will increase the cost of an insurance policy.

Other than employer’s liability insurance you may need additional coverage to protect yourself and your business. This includes:

  • Public liability protection
  • Product liability insurance
  • Business interruption insurance
  • Business building insurance
  • Business vehicle insurance
  • Cyber insurance

Certain other industries like construction have specific insurance needs such as:

  • Tools insurance
  • Stock and materials insurance
  • Plant (machinery) insurance
  • Contract works insurance