What is employer’s liability insurance?
With so many things to think about and learn when starting a new business it’s no wonder that things get confusing, non more so than insurance and liability cover. This article aims to demystify and explain the common question “what is employers liability insurance in the UK”
Employers are legally responsible for the health and safety of their employees while they are at work.
An employee may suffer an injury or illness while working for an employer, or may even fall ill after they have left that employment due to work they had previously carried out.
In any of these circumstances, a present or past employee may try to sue the employer for compensation due to injury or illness.
This is where employer’s liability insurance comes into force, and for the majority of businesses that employ people it’s a legal requirement.
So, what is the purpose of employer’s liability insurance?
Simply put, the legal requirement for having insurance in place is to ensure the employee gets a fair pay-out for a rightful claim against sickness or injury caused during their lawful work.
However, it’s also there to protect the business as well.
Let’s say for example a court awarded Mrs Jones £100,000 compensation for an injury caused by faulty machinery or component failure. Although the company may have accepted liability, and may have even agreed the award was fair, it doesn’t necessarily mean that they have £100k cash floating around spare in the business. Not many businesses have!
The only course of action for the company would be to try to borrow the money which potentially could put the business under financial strain leading to cutbacks and redundancies.
While the court wishes to put the claimant into a financial position that addresses the severity and loss caused by the injury, they also don’t want to jeopardise the viability of the business and put people’s livelihood at stake.
This is where the employer’s liability insurance is a win/win. It ensures the claimant is paid their award if the business is not in a position to do so, but it also protects the dependents of the business by mitigating the impact of a severe monetary award.
How much cover is required, and do you need to tell your employees about it?
A business must take out a minimum insurance level of £5 million pounds. However, a risk-based approach should be adopted to ensure this would be enough to cover all costs.
In reality a lot of policies now have a minimum cover level of £10-million, and if you are a group of companies this level of cover can be spread across the group.
Once a business has taken out Employer liability Insurance it will be issued with a certificate of insurance which must have the level of cover and the companies covered clearly displayed on it.
A business is required by law to display a copy of the certificate in a place where it can be easily read by the employees.
However, since October 1st 2008 the certificate can be displayed electronically. As long as your employees know how to access it and can reasonably access it then this is acceptable.
If an employee specifically requests to see a copy of the certificate, then this must be provided as soon as possible and certainly within 10-days of the request.
Keeping records of certificates.
Although now no longer a requirement, a business is not required by law to keep copies or records of old certificates. However, it is strongly advised that some sort of record is kept.
This is because certain diseases (such as asbestos related illnesses) can appear decades afterwards, and an employee who is affected may decide to make a claim against an employer for the time frame they were exposed to the danger that may have caused the illness.
Is every business required to have cover?
The answer is Yes, unless you are a business or organisation that is exempt from the Employer’s Liability (Compulsory Insurance) Act.
Employers that fall under this category are:
- Family businesses where all the employees are closely related such as husband and wife, brother and sister, civil partners, mother, father, grandparents, grandchildren, stepparents, stepchildren, half siblings etc.
- A business employing only the owner where that employee owns over 50% of the issued share capital.
- Public organisations such as the Police Authority, government departments and agencies, local authorities.
- The NHS including trusts
- Organisations financed through public funds such as transport executives and magistrate court committees.
Does a business have to have cover for everybody who works for them?
The law requires that a business has sufficient insurance cover for people it employs under a contract of service, including apprenticeships.
What largely determines whether people in an organisation should have cover is the nature of the relationship between the business and the people, and the degree of control the business has over the work they do.
Therefore, the following would be a good decider as to whether they should be afforded cover.
- The business deducts tax and national insurance from the money it pays them
- The business has the right to exercise control over the type of work the person carries out and when and where they do it.
- The business makes a profit out of the works supplied.
- The business supplies the tools and materials.
- The person cannot supply a substitute to carry out the service.
- The person is afforded the same treatment as other workers doing the same work in the same building.
A business may not need to provide cover if the following apply.
- Where the person does not exclusively work for the business and clearly has other customers.
- Where the person supplies their own equipment and materials which is charged back to the business.
- Where the person can supply a substitute (i.e. he employs another person who can do the work)
- The person is clearly in business for his/her own benefit.
- The business does not deduct tax or national insurance.
- (Note. A person may be self employed for tax purposes but classed as an employee for other reasons. In this case it would be advised to seek clarification from an insurance provider)
The penalty for not having employers’ liability insurance.
The law on employers’ liability insurance is enforced by the HSE.
HSE inspectors can check with an approved insurer whether a business has appropriate cover of at least £5 million.
If an inspector asks to see a certificate and it can’t be produced, a business may suffer a fine up to £1000.
On top of that, a business can be fined £2500 for every day it does not have the required cover.
Does a Business Have to Hold Public Liability Insurance Cover As Well?
The answer to that is no, not necessarily but it is strongly advised if the business or employees interact with the public in any way.
You can read more about Public Liability Insurance by clicking the link.
I hope you found this article helpful. If you have any comments, queries or wish to add anything, please leave a message below and we will respond as soon as possible.
The latest information on this topic can be found at THE HSE
Advice about whether a person is an employee can be found by contacting a solicitor, visiting a legal centre or a Citizens’ Advice Bureau.
As always, laws and regulations change over time so please check for the latest updates at www.hse.gov.uk/