Employers’ liability insurance: a legal requirement you can’t afford to ignore

October 17, 2024

Ensuring employee safety is crucial for any business. However, workplace accidents can occur, leading to serious injuries and costs for employers. In the UK, employers’ liability insurance is not just a wise choice; it’s a legal requirement for most organisations.

Failing to comply can result in hefty fines, legal issues, and damage to your company’s reputation. This article will explore what employers’ liability insurance covers, the legal obligations it entails, and the serious risks of operating without it. Understanding this insurance is essential—don’t let your business be caught unprepared.

Key takeaways

Employers' liability insurance is legally required in the UK to protect businesses from claims by employees for work-related injuries or illnesses.
Failing to have this insurance can result in substantial fines, legal trouble, and financial risks, including unlimited compensation claims.
Implementing strong safety practices helps prevent workplace accidents and can reduce the likelihood of employee claims.

What is employers’ liability insurance?

Employers’ liability insurance covers the third-party costs that a current or ex-employee is entitled to, should a work-related illness, injury or death befall them as a result of working for your business.

As an employer, you’re naturally responsible for the safety of your people when they’re working. It covers the costs of compensation and legal fees if an employee sues your business. Without this insurance, businesses face significant fines and legal consequences for non-compliance.

Is employers’ liability insurance compulsory?

Employers’ liability insurance has been deemed important enough to be classed as a legal requirement for employers in the UK under the Employers' Liability (Compulsory Insurance) Act 1969. Aside from the legal repercussions and hefty fines, not having employers’ liability would leave you vulnerable to costs such as:

Damages
Compensation costs
Legal fees

This coverage is mandatory for most businesses in the UK besides sole traders and those employing only family members, and the law requires that employers have at least £5 million in coverage. As well as worrying about expensive lawyers, the High Court has unlimited jurisdiction, meaning that there is no limit to the amount of money it can hand out in compensation for an employers’ liability claim.

Why do you need employers’ liability insurance?

Ignoring the legal requirement for employers' liability insurance can have severe consequences. The financial penalties for non-compliance are substantial, and you could be personally liable for compensation and legal costs. This can lead to significant financial losses, and in extreme cases, it could result in business closure.

£2,500

the amount fined every day that you are not properly insured

gov.uk

£61

the average yearly cost of an employers' liability policy, per office-based employee

Statistica

80%

of SMEs are thought to be underinsured

Allianz

How can you mitigate your risk against employers’ liability claims?

While having employers' liability insurance is essential, preventing workplace accidents is even more critical. Here are a few best practices that employers should implement:

Safety training: Provide regular safety training to all employees to minimise the risk of accidents and injuries.
Workplace inspections: Conduct frequent safety inspections to identify and resolve potential hazards.
Record keeping: Keep thorough records of safety protocols, incidents, and any corrective actions taken to improve workplace safety.

By adopting good health and safety practices, businesses can reduce the likelihood of accidents, thereby lowering the risk of employee claims and possibly even reducing insurance premiums.

What’s the difference between public liability and employers’ liability insurance?

Public liability insurance covers claims made by third parties, such as customers or the public, for injuries or damage to their property caused by your business. In contrast, employers’ liability insurance is for businesses with employees and covers claims from workers who are injured or fall ill due to their job. Both are legally required in the UK.

Self-employed workers, contractors, work experience, volunteers – do they need to be covered by employers’ liability insurance?

It depends on their working arrangement. Self-employed workers and contractors typically do not need to be covered if they work independently and provide their own insurance. Close family members (e.g., spouse or immediate family) may also be exempt from this type of insurance. However, if you control how, when, and where they work, they may be considered employees and require coverage.

Work experience students and volunteers often need to be covered, especially if they are under your supervision and direction, as they can be treated similarly to employees under the law. Always check individual circumstances to ensure compliance.

Conclusion

With the potential for heavy fines, legal repercussions, and financial losses, no employer can afford to ignore this requirement. By securing the right coverage and maintaining a safe workplace, you not only comply with the law but also safeguard the future of your business. Take action today to ensure your business is properly insured and prepared for any eventuality.

Author

Jack Briggs Cert CII, Commercial Account Executive and employers' liability champion

With almost a decade of experience in the insurance industry, Jack has a demonstrated history and extensive market knowledge working with difficult to place liability, property and motor risks, all whilst offering a ‘hands on’ approach to risk management.

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