What does employers' liability insurance cover

Employers’ liability insurance provides vital protection for companies with staff. This legally required policy helps businesses pay compensation and legal costs if an employee gets injured or becomes ill due to their work and you, as the employer are held liable.

Despite best efforts to ensure safety, workplace accidents and illnesses unfortunately still happen. Heavy machinery can malfunction. Office workers can trip on faulty wiring. Employees can develop serious diseases from asbestos, chemicals, or infections at work.

When these incidents occur, the impacted employee may have the right to sue their employer for damages. The compensation owed can include money for medical treatments, lost income, pain and suffering, and other costs.

Defending against an employee claim in court quickly becomes very expensive in legal fees. Even if the business wins the case, the legal costs may still devastate a small company’s finances.

This is where employers’ liability insurance becomes absolutely vital. The policy covers both compensation payouts and legal defence bills if an employee sues for a work-related injury or illness. It protects companies from financial ruin due to expensive employee claims.

This article explains what the insurance covers, who needs it, policy costs, exemptions, and why it’s so important for employers.

Legal requirement for UK businesses

• Most firms in the UK are legally required to have employers’ liability insurance.
• The minimum cover amount is £5 million. Companies can choose higher cover limits.
• Businesses can be fined up to £2,500 per day for not having adequate insurance.

Who needs employers’ liability insurance?

Nearly every UK business that has employees needs employers’ liability insurance. This includes:

• Full-time employees – Whether they work on company premises or remotely, full-time staff need to be covered.
• Part-time employees – The number of hours doesn’t matter – part-time workers are also legally considered employees.
• Temporary employees – Any temp staff, seasonal workers, or those hired for short-term contracts need coverage.
• Apprentices and interns – Businesses hiring apprentices and interns require employers’ liability insurance.
• Volunteers and work experience – Volunteers, student placements, and unpaid work trials also require coverage as they work under company direction.
• Contractors and subcontractors – “Labour-only” contractors directed by the company need coverage. “Bona-fide” contractors with their own tools may not.
• Family businesses – Incorporated limited companies employing family members need compulsory coverage despite the relation.

Almost all public and private companies with any employees need this insurance. Even having just one part-time employee requires a policy with minimum £5 million cover. Limited companies also need it if they have more than one director.

Seek legal advice if you are unsure whether your business needs employers’ liability insurance based on your unique circumstances. Many organizations choose to buy this cover even when technically exempt to ensure protection.

What does the insurance cover?

Employers’ liability insurance provides several essential protections:

• Compensation payouts – Covers compensation payments if an employee gets injured, falls ill, or sues due to a work-related incident where you are found at fault.
• Legal defence costs – Pays legal fees to defend the company against employee claims.
• Settlements – Pays settlements to resolve claims out of court.

It protects the company in situations such as:

• An employee being injured at work by tripping, falling, equipment malfunction, etc.
• An employee developing an illness due to workplace exposures like asbestos, chemicals, infections, etc.
• An employee being injured while travelling for work duties off-site.

The policy covers the compensation payments and legal costs in these types of scenarios resulting from a work-related injury or illness.

How much does employers’ liability insurance cost?

The premium cost for an employers’ liability policy depends on several risk factors:

• Number of employees – More employees means higher risk exposure for the insurer.
• Nature of work – Businesses in high-risk industries like construction, manufacturing and healthcare pay higher premiums.
• Employee salaries – Paying employees higher wages can increase potential lost income claims.
• Claims history – Prior compensation claims will increase costs.
• Cover limit – £10 million cover costs more than the £5 million legal minimum.
• Incorporated status – Insuring a limited company costs more than a sole trader.

Prices can vary widely based on the firm’s size, industry, employee salaries, and any past claims. Larger companies and high-risk sectors will pay much more in premiums compared to a small professional services firm with desk-based employees for example.

Key exemptions from compulsory insurance

While nearly all employers are legally required to have an employers’ liability insurance policy, there are a few exemptions:

• Sole traders employing only family members – As long as they are unincorporated and not a limited company, they may be exempt. However, many still choose to purchase cover.
• Businesses with no employees – Companies without any employees do not need employers’ liability insurance.
• Certain contractors and subcontractors – Independent “bona fide” contractors using their own tools may not need coverage in some cases.
• Employees based abroad – Employees permanently working outside of the UK may not need to be covered.

Additionally, some circumstances involving volunteers, partners, and business principals can affect compulsory insurance requirements.

The rules and exemptions related to the Employers’ Liability Compulsory Insurance Act and other regulations are complex. Businesses should seek legal advice from an insurance specialist if unsure whether their unique situation requires compulsory employers’ liability cover or not.

Many organizations choose to purchase this insurance even when technically exempt, in order to ensure protection in case of claims. Having adequate cover provides peace of mind and reduces business risks.

Why employers’ liability insurance is vital

There are several key reasons why having adequate employers’ liability insurance is so important for businesses:

• It is legally required for most companies – Failing to have compulsory insurance can result in substantial fines of £2,500 per day. Staying compliant with regulations like the Employers’ Liability Compulsory Insurance Act reduces legal risks.
• Protects businesses from financial devastation – Expensive employee injury claims and lawsuits could bankrupt companies without insurance, especially small businesses and startups with less capital.
• Covers past employees too – Former employees can make claims many years later for illnesses like asbestos-related conditions. Insurance covers these legacy liabilities.
• Provides employee reassurance – Workers feel more secure knowing that compensation will be paid if they suffer a work-related illness or injury. This improves employee relations.
• Gives peace of mind against the unknown – Accidents and emergencies can happen anytime. Insurance protects against unforeseen events that lead to employee claims down the road.

Having adequate employers’ liability cover is part of operating a responsible business. It benefits both the company by limiting risks and employees by providing security.

Conclusion

Employers’ liability insurance provides vital protection by covering compensation and legal costs if employees get injured or sick due to work. This legally required cover protects companies from financial devastation due to staff claims.

All UK businesses need adequate employers’ liability insurance, even if they have minimal employees. Sole traders employing only family may be exempt, along with companies without staff.

Ensure your particular business has sufficient cover by seeking proper legal and insurance advice. Buy enough insurance to cover possible lost income, settlements, and legal expenses from staff claims.

Keep policies updated as your risks and liabilities grow. Make sure employees understand their protection.