Almost all businesses that hire workers need employers’ liability insurance by law. There are a few types of businesses and organisations that do not need it, and a few instances when someone hired to work for the business is exempt. But largely speaking most businesses that have someone working for them will need to hold employers’ liability insurance.

This worker may not be a permanent employee, but the law protects staff in a wide range of scenarios including anyone who:

  • Is bound by work hours and work location set out by the business.
  • Uses the business’ materials and equipment to do their job.
  • Has their national insurance and income tax deducted by the business.
  • Is treated the same as other employees, with the same working conditions for the same work.
  • Must give some or all profits made to the business.
  • Is not allowed to subcontract work out to someone of their choosing.

However, there are a few instances where a worker is not classed as an employee including anyone who:

  • Is a close family member. The Health and Safety Executive lists these as a husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother, or half-sister. However, this exemption does not apply to limited companies.
  • Does not work exclusively for the business.
  • Supplies the majority of their own equipment and materials needed for the job.
  • Is based abroad. However, if they are in Great Britain for more than 14 consecutive days or more than seven consecutive days on an offshore location, this exemption does not apply.
  • Does not have national insurance and income tax deducted by the business. However, if a worker is classed as ‘self-employed’ for tax purposes but is still classed as an employee this exemption does not apply.
  • Operates as a business for their personal benefit.

There are several types of employers that do not require employers’ liability insurance although these are largely public sector. Most government departments, agencies, local authorities, police, courts, public health bodies, and other nationalised industries do not need employers’ liability insurance. In addition, family businesses (that are not limited) that only hire closely-related family members do not need employers’ liability insurance.

If you’d like to learn more, insurance experts at NimbleFins have put together a handy guide on employers’ liability insurance, including average costs and how to compare quotes.

What is employers’ liability insurance UK?

Employers’ liability insurance in the UK is financial and legal protection against claims made by current and former employees who allege they fell ill or sustained an injury while working for the business. Essentially it means the place of work is held responsible – or liable – for the illness or injury.

The insurance covers the legal costs of representation as well as compensation payments agreed. Even if a business is diligent it may be chased for an unfounded compensation claim and this insurance will fund the legal costs associated with defending a case.

Equally, employers are still expected to follow strict health and safety guidelines as employers’ liability insurance is not an excuse to be neglectful in protecting workers. If a business is found to have been negligent an insurance company could sue it for its own compensation.

Employers’ liability insurance also covers death at work, with compensation paid out to the family of the deceased.

Why is employers’ liability insurance important?

Not only is employers’ liability insurance a legal requirement, but millions of workers also become ill or injured at work every single year.

Any business found to be without employers’ liability insurance can be fined £2,500 a day until their policy is confirmed. A business must also display its insurance certificate for members of staff to see, either in a public workspace or electronically. If the Health and Safety Executive asks for proof of insurance and it cannot be sourced, a business can be fined £1,000.

Figures from the Health and Safety Executive (the Government’s workplace watchdog) show 1.6 million people suffered a work-related illness in 2019/20. Another 693,000 sustained an injury at work, according to the HSE’s Labour Force Survey. And 111 people were killed at work. The scale of illness and injury meant 38.8 million workdays were lost. And the previous year’s incidents cost £16.2 billion.

Industries with higher-than-average reports of workplace injury last year were agriculture, forestry, fishing, construction, accommodation and food services, manufacturing and wholesale/retail trade, according to the HSE.

Meanwhile, public administration, defence, human health and social work and education were the industries with higher-than-average ill-health among employees.

The coronavirus pandemic has put additional responsibility on employers to report any cases which may have been caused by occupational exposure to the disease. They are required to report the cases to the relevant regulatory body.

The HSE found 31,380 occupational coronavirus cases were reported between 10 April 2020 and 13 March 2021. Out of these, there were 367 deaths.

Do I need employers’ liability insurance if I have no employees?

If a limited company does not have any employees and the sole director owns at least 50% of the business it probably does not need employers’ liability insurance. However, some clients may require employers’ liability insurance in order to work with a business.

Employers’ liability insurance covers members of staff, but some sole traders opt to take out personal accident insurance in case they are injured or fall ill. When a self-employed worker is not able to trade they are not making money. Personal accident insurance covers the cost of lost revenue until the sole trader is back on their feet.

By Lisa Baker, Senior Editor

Senior Editor Lisa Baker is the owner of Need to See it Publishing Group, providing contract news for business and news sites across the UK. Lisa is an experienced HR writer and commentator, editing HR publications for more than 5 years.