Nearly all businesses in the UK legally need to have employers’ liability insurance. There can be hefty financial penalties for companies that lack any active policy; however, there are other crucial monetary reasons why taking out EL, as employers liability insurance is known, can be essential.
How can employers’ liability insurance help you?
As an employer, you are responsible for protecting your workers' health and safety when they work for you. If they become sick or injured directly due to carrying out this work, they have a right to take legal action against you or demand compensation.
For example, one of your employees may inadvertently fall due to a faulty ladder that your firm provided. Alternatively, they could suffer side effects resulting from handling particular materials that you have supplied. Situations like these could necessitate a big financial payout on your part - and an active employers liability policy could help to ensure that you can genuinely afford it.
Where is employers liability insurance not useful?
It is worth taking account of where EL's coverage ends and, therefore, where you will need to turn for other remedies to prevent your company becoming seriously compromised financially. While EL will cover illnesses or injuries that your workers pick up either on- or off-site, it might not include any such problems arising from motor accidents. You may need separate motor insurance for this.
Furthermore, EL's coverage does not extend to people who visit your corporate premises without actually being employed at the company. Such people could obviously include customers and clients - and for these people, you can obtain what is called public liability insurance.
Which businesses don't require employers liability insurance?
There are very few exemptions to the legal necessity of EL for UK companies. What exemptions do exist apply to small businesses and start-ups that meet very particular criteria.
As bytestart.co.uk explains, you do not need EL by law if you run a limited company of which you are a director, you have a minimum of 50% of the shares, and the company has no employees. You will also be able to legally forgo EL if your business is unincorporated - it is a sole trader or partnership - and employs only what the Health and Safety Executive (HSE) deems to be close family members.
For the sake of this rule, HSE classifies the following as examples of close family members: wife, husband, civil partner, mother, father, grandmother, grandfather, stepmother, stepfather, daughter, son, granddaughter, grandson, stepdaughter, stepson, sister, brother, half-sister, half-brother.
What are the financial risks of not having employers liability insurance?
Without EL, you might not have, at close hand, money for funding a compensation payout if an employee is indeed hit with illness or injury directly resulting from their work routine. This can be especially problematic if the business still has a relatively small financial turnover.
When you are endeavouring to keep your outgoings as regular and steady as your takings, an unexpected and inopportune requirement to pay such compensation can be a nasty sting to your firm's finances. However, assuming that your business does not fall into one of the EL-exempt categories specified above, there are more immediately pressing reasons to have EL active.
The UK Government website explains that you could be fined £2,500 each day that you are not "properly insured". To be so insured, your EL policy has to cover you for at least £5 million and have been sourced from an authorised insurer. To check whether your EL insurer is authorised, look at the Financial Conduct Authority (FCA) register or get in touch with the FCA directly.
You could also incur a £1,000 fine if you fail to display your EL certificate or, when requested by inspectors, make it available to them. You should further ensure that you always have an active EL policy whenever it is legally required, as fines can also be backdated. Once a policy has expired, keep its certificate; an ex-employee can still make a claim if an illness or injury has taken long to appear.
How expensive is employers’ liability insurance?
There are various companies that offer EL insurance, the price of which for you can differ according to a range of factors. Those factors include the level of risk your employees are perceived to face, plus any history you have of making claims - or long going without making any claim. The overall amount of cover required will also be factored in to determine the EL's price.
It is generally the case that, the more you potentially need to pay out to employees, the higher the price you will need to pay to take out EL. However, we would urge you not to be over-zealous in attempting to trim the expense of your initial financial outlay for EL. Were you to be so, it is your own company's financial health that you would be risking.
However, as you will still have a short-term budget to carefully keep in check, we would recommend that you try to strike a suitable balance between considering that budget and financially protecting your company in the long-term. The insurance needs to be capable of both protecting your workers from monetary loss and ensuring your company's continued operation should an incident occur.
How can you take out an appropriate EL policy?
Seek a quote from a well-regarded EL insurance provider. You don't have to take out the policy in its own package; you could alternatively obtain combined business insurance that brings together policies of each of the different insurances that your firm requires.
Going down this route can lower those insurances' overall cost, which can total a higher amount if you instead source the policies from separate insurers. Furthermore, you can save time - likely a precious commodity for your business - and more easily renew your cover year after year.
EL might - for almost all UK businesses - be necessary by law, but our advice here can help you to avert various pitfalls, including some that can come with a search for EL.