Employers' Liability Insurance: A Legal Requirement Explained

Employers' liability insurance is a type of business insurance that covers your business against compensation claims from employees who are injured or become ill as a result of their work. If a member of your staff develops a condition linked to their job, or is hurt while carrying out their duties, they have the right to claim compensation from you as their employer.

This insurance covers the cost of that compensation, along with the legal fees involved in defending the claim. Without it, your business would need to pay these costs directly, which could be financially catastrophic, particularly for a small business.

Employers' liability insurance is a legal requirement for most UK businesses that employ one or more people. The requirement is set out in the Employers' Liability (Compulsory Insurance) Act 1969, which mandates a minimum cover level of £5 million. In practice, most policies provide £10 million of cover as standard.

Yes, employers' liability insurance is a legal requirement for almost every UK business that employs staff. This obligation comes from the Employers' Liability (Compulsory Insurance) Act 1969, and it applies from the moment you take on your first employee.

The legal requirements at a glance

• Minimum cover level - You must hold at least £5 million of employers' liability cover. Most insurers provide £10 million as standard, and many client contracts require this higher level.
• Authorised insurer - Your policy must be with an insurer authorised by the Financial Conduct Authority or the Prudential Regulation Authority. Policies from unauthorised or overseas-only insurers do not satisfy the legal requirement.
• Continuous cover - You must maintain cover without any gaps for as long as you have employees. Allowing your policy to lapse, even briefly, puts you in breach of the law.

Penalties for non-compliance

The penalties for failing to hold employers' liability insurance are significant:

• Fine of up to £2,500 per day - For each day you operate without the required cover, you can be fined up to £2,500. Over the course of a year, this adds up to a potential liability of over £900,000.
• Fine of £1,000 - For failing to display your employers' liability certificate or for failing to make it available for inspection.

Who is exempt?

A small number of businesses are exempt from the legal requirement to hold employers' liability insurance:

• Sole traders with no employees - If you are self-employed and do not employ anyone, you do not need employers' liability cover. However, if you take on even a single temporary worker, the requirement kicks in immediately.
• Family-only businesses - If your only employees are close family members (spouse, civil partner, parents, children, siblings), you may be exempt. This exemption does not apply to limited companies.
• Limited company directors with 50% or more ownership - If you are the sole director and own 50% or more of the shares, and you have no other employees, you may be exempt. However, the moment you hire anyone else, you need cover.
• Some public organisations - Certain government bodies, local authorities, and NHS trusts are exempt, as they are effectively self-insured by the Crown.

If you are unsure whether you need employers' liability insurance, the safest approach is to assume you do. The cost is relatively modest, and the consequences of getting it wrong are severe.

Employers' liability insurance covers compensation claims from your employees for work-related injuries, illnesses, and conditions. The policy pays both the compensation awarded to the employee and the legal costs of defending the claim, up to the policy limit.

Common claim scenarios

Here are some examples of the types of claims that employers' liability insurance covers, along with typical compensation ranges:

• Slip, trip, or fall in the workplace - An employee slips on a wet floor in a warehouse and breaks their hip. Compensation for a hip fracture can range from £12,000 to £130,000 depending on severity and the impact on the employee's ability to work.
• Repetitive strain injury - A data entry worker develops carpal tunnel syndrome after years of keyboard use without proper ergonomic equipment. Compensation typically ranges from £3,000 to £20,000, plus the cost of ongoing treatment and any loss of earnings.
• Exposure to hazardous materials - A construction worker develops respiratory problems after being exposed to asbestos on a job site. Asbestos-related claims can result in compensation awards exceeding £100,000, particularly where the condition is serious or life-threatening.

What is not covered

• Injuries to members of the public or third parties (covered by public liability insurance)
• Injuries that are not related to the employee's work
• Claims from genuinely self-employed subcontractors (though this is a grey area, as some contractors may be classified as employees for insurance purposes)
• Deliberate self-harm by the employee

If you employ anyone to work for you, you almost certainly need employers' liability insurance. The definition of "employee" for insurance purposes is broader than many business owners realise, and getting it wrong can leave you exposed to fines and uninsured claims.

People who count as employees

• Full-time and part-time staff - Anyone on your payroll, whether they work full-time hours or just a few hours per week, is an employee for employers' liability purposes.
• Temporary and casual workers - Seasonal staff, temps, and casual workers all count. If you take on extra help over Christmas or during a busy period, you need cover from their first day.
• Apprentices - Apprentices are employees and must be covered by your policy.
• Volunteers - Some volunteer arrangements create an employment relationship for insurance purposes. If you direct the work of volunteers, provide their equipment, and control how they carry out tasks, they may be treated as employees. This is particularly relevant for charities and community organisations.
• Labour-only subcontractors - If a subcontractor provides their labour but uses your tools and works under your direction, they may be classified as an employee by a court, even if you consider them self-employed. This is common in the construction industry and among contractors.

People who are not usually employees

• Genuinely self-employed contractors who supply their own tools, set their own hours, and have their own insurance
• Close family members employed by a non-limited company (may be exempt)
• Students on work experience placements (varies - check with your insurer)

When in doubt, include anyone who works for your business on your employers' liability policy. The additional cost is usually small, and the protection against an uninsured claim is invaluable.

Employers' liability and public liability insurance are often confused, but they cover fundamentally different risks. Employers' liability covers claims from your employees, while public liability covers claims from third parties such as customers, visitors, and members of the public. Holding one does not replace the other, and most businesses with employees need both.

The confusion often arises because both policies deal with injury claims. However, the legal basis is different. Employers' liability is a legal requirement under the Employers' Liability (Compulsory Insurance) Act 1969, with a mandatory minimum of £5 million. Public liability is not legally required, but is often demanded by clients, landlords, and trade bodies. The two policies work alongside each other to give your business comprehensive protection against all types of injury claims.

The table below highlights the key differences between these two essential forms of business cover, including who they protect, whether they are legally required, and what a typical claim looks like.

Most tradesmen and small businesses with employees will need both policies. Many insurers offer them together as a combined business insurance package, which is usually cheaper than buying them separately and ensures there are no gaps between the two policies. A combined package also simplifies administration, with a single renewal date and one insurer to deal with for all your claims.

If you are a sole trader with no employees, you will not need employers' liability insurance, but public liability is still strongly recommended if you work with the public or on client premises. If you take on your first employee, make sure you add employers' liability to your cover immediately, as the legal requirement kicks in from day one.

It is also worth noting that some contracts require both policies to be in place before you can start work. Commercial clients, local authorities, and main contractors on building sites will typically ask to see certificates for both employers' liability and public liability before granting access. Having both policies already in place avoids delays and means you are ready to accept new contracts at short notice.

Employers' liability insurance is often more affordable than business owners expect. For many small businesses, the annual premium starts from around £50 to £100 per year when bought as part of a combined business insurance package. Standalone policies may cost slightly more.

Several factors influence the cost of your employers' liability premium:

• Number of employees - More employees means higher premiums, as the insurer is covering a larger pool of potential claims.
• Industry and occupation - Businesses in higher-risk industries such as construction, manufacturing, and manual trades pay more than office-based businesses. A building firm will pay significantly more than an accountancy practice.
• Annual payroll - Many insurers use your total wage bill as the basis for calculating the premium, because a larger payroll implies a bigger workforce and greater exposure.
• Claims history - Previous claims will push your premium up. A clean claims history over several years will help keep costs down.
• Risk management measures - Demonstrating that you have robust health and safety procedures, provide appropriate training, and carry out regular risk assessments can help reduce your premium.

Given that the legal minimum cover is £5 million and fines for non-compliance can reach £2,500 per day, the cost of the insurance is a small price to pay for staying on the right side of the law and protecting your business.

In addition to holding employers' liability insurance, you have specific legal duties around displaying your certificate and keeping records. Failing to meet these requirements can result in additional fines.

Displaying your certificate

You must display your current employers' liability insurance certificate where your employees can easily read it. This can be a physical copy pinned to a noticeboard in your workplace, or it can be made available electronically, such as on a shared network drive or company intranet. If you have multiple work sites, each location should have access to the certificate.

If an inspector from the Health and Safety Executive (HSE) asks to see your certificate and you cannot produce it, you can be fined up to £1,000.

Keeping records

You are required to keep copies of your employers' liability insurance certificates for 40 years. This is because some work-related conditions, particularly those caused by exposure to hazardous materials such as asbestos, can take decades to develop. An employee might not make a claim until many years after leaving your employment, and you will need your historical certificate to show that you had cover in place at the relevant time.

Store your certificates securely, either as hard copies in a fireproof location or as digital scans backed up to a secure cloud storage service. Your insurer can usually provide replacement copies if you need them, but it is far easier to keep your own archive up to date from the start.