Table of Contents:
4. The Law
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YOUR GUIDE TO EMPLOYERS’ LIABILITY INSURANCE
If you employ people within your business, Employers’ liability insurance is one of the only mandatory business and work-related insurances in the UK. Almost all small business owners and self-employed people must have employer’s liability insurance to operate legally. The risks of not having a policy in place are enough to destroy a business, so this is one kind of insurance that cannot be overlooked.
All employers have a legal duty of care to the people who work for them. This duty of care includes providing employees with a safe place to work and the equipment needed to work safely. It also includes your duty to provide appropriate insurance cover in case of accident or illness which an employee can attribute to their work. Accidents do happen and not all of them are the fault of the employer. However, without insurance in place employers are acting illegally and have no means to defend a case, even if there is no fault on your part.
In this ultimate guide we look closely at what employers’ liability insurance is, what it covers and whether it is something you need for your business. We discuss the risks of not having a policy in place, and also compare employers’ liability insurance with public liability insurance.
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WHAT IS EMPLOYERS’ LIABILITY INSURANCE?
Employers’ liability insurance is an insurance policy that protects your business against the costs of compensation claims that could arise from your employees; specifically, claims relating to an injury or illness they sustained due to their work for you. If negligence is proven, insurance covers the cost of any compensation awards to an employee and will also cover your legal fees. It applies whether accidents or illness occur on or off site and it applies to both current employees and those who have left your business.
Employers’ liability insurance is not usually a standalone product. Typically, it is sold in conjunction with public liability insurance, with both policies working hand-in-hand to protect your business, its employees and the people it serves. Insurers on the constructaquote.com panel offer combined policies, which could offer the best value for money and cover for business owners.
WHAT IS THE DIFFERENCE BETWEEN EMPLOYERS’ LIABILITY AND PUBLIC LIABILITY INSURANCE?
The main difference between employers’ and public liability insurance is in the name:
• Employer’s liability provides protection for your employees
• Public liability provides protection for members of the public, including customers, clients and other third parties.
Employers’ liability insurance is also a legal requirement, whilst public liability is considered essential cover but is not mandatory. Public liability is often a contractual requirement – something your clients may expect from you. Typically the case when working with the local council and government projects where £5 million or £10 million cover is standard.
Employers’ Liability Insurance is made compulsory by the Employers’ Liability (Compulsory Insurance) Act 1969. This legislation sets a minimum level for insurance cover and if you are found trading without the right liability insurance, you are at risk of penalty fines and even prosecution. All employers’ liability insurance records are stored by The Employers’ Liability Tracing Office (ELTO) ensuring they are easily accessible by all required parties in the event of a claim.
On purchase, you will be provided with a certificate of employers’ liability insurance, which must be displayed to your employees at all times. The Employers’ Liability (Compulsory Insurance) (Amendment) Regulations 2008 states that this can now be displayed in an electronic format, as long as it is reasonably accessible to employees. It is also a legal requirement that you make your certificate available to HSE inspectors.
If you do not have valid employers’ liability insurance, you could be faced with fines of up to £2,500. This fine is applied for every day you have been trading uninsured – just think of the crippling cost to your business. You can also be fined up to £1,000 if you do not display your certificate of insurance clearly and in a place that is easily accessible to employees. Potentially, your business could be ruined by inadequate insurance or no insurance at all, so it is vital that all business owners appreciate just how important this kind of policy is.
WHAT HAPPENS IF YOU DON’T HAVE EMPLOYERS’ LIABILITY INSURANCE?
The Employers’ Liability (Compulsory Insurance) Act 1969 is enforced by the Health and Safety Executive (HSE). The HSE has been responsible for workplace health and safety regulation and enforcement since its formation in 1975 and it is sponsored by the Department of Work and Pensions.
HSE inspectors are legally allowed to look into whether you have a valid employers’ liability insurance in place. They can also check whether it has been obtained by an approved insurance supplier and that you have cover to the legal minimum level. As mentioned above they can ask to see your certificate of insurance at any time.
HOW MUCH COVER DO YOU NEED?
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You are legally required to have a minimum insurance cover of £5 million. After carrying
out a risk assessment you may find your business actually needs more cover which is why some insurers, including many of our partners at constructaquote.com, start their cover at £10 million.
Remember that your cover needs to incorporate both the damages you may need to pay out and your legal costs. Your monthly or annual insurance premium may seem like a large price to pay, but it is a much smaller amount than you would face if a claim was made against your business.
BUDGETING FOR EMPLOYERS’ LIABILITY INSURANCE
As with any type of insurance, the cost of premiums varies from insurer to insurer. Here at constructaquote. com, our aim is to ensure that you get the insurance cover you need at a competitive rate that represents good value for money. We appreciate the individual nature of all businesses and understand business owners
want to get the best cover for their budget.
The price of premiums is influenced by a range of factors, including:
The number of people you employ
The nature of your business
Your past insurance claims history
You can adjust your Employers Liability insurance to provide cover that you feel fits your business and typically covers the cost of any claims made by employees or former employees as well as the associated legal costs.
DOES MY BUSINESS NEED EMPLOYERS’ LIABILITY INSURANCE?
We have already mentioned that there are some businesses exempt from the Employers’ Liability (Compulsory Insurance) Act 1969. Exemptions are in place for businesses in specific sectors, with specific conditions also in play. They include:
Public Organisation Employers
Government departments, local authorities, police forces, nationalised industries and other public organisations are exempt from employers’ liability insurance. Almost all organisations in this sector do not need to have this type of insurance cover.
If you run a small business on a sole trader basis and only employ members of your close family, then you are not legally required to have employers’ liability insurance in place. The HSE define close family as relatives including: husbands, wives, civil partners, fathers, mothers, grandfathers, grandmothers, stepfathers, stepmothers, sons, daughters, grandsons, granddaughters, stepsons, stepdaughters, brothers, sisters, half-brothers and half-sisters. It is important to note that if your family business is a limited company then this exemption does not count.
We will take a closer look at family businesses and employers’ liability insurance later in this guide.
Health and Healthcare Bodies
Healthcare service providers and organisations including National Health Service trusts, primary care trusts, Scottish Health Boards and health authorities are not required to have employers’ liability insurance.
Businesses do not need employers’ liability insurance where there is only one company employee and over 50% of the company’s issued shares are owned by that person.
QUESTIONS TO ASK YOURSELF BEFORE INVESTING IN EMPLOYERS’ LIABILITY INSURANCE
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The previous exemptions make it clear what type of businesses do not need this kind of insurance. To help clarify your legal requirements further, let’s take a look at the business conditions that make this insurance mandatory. Concerns are often raised by business owners as they are not sure if the people that work for them are classified as employees, as per the Employers’ Liability (Compulsory Insurance) Act 1969.
You are required by law to have employers’ liability insurance for people who are employed under a contract of service or apprenticeship. The terms which contract your workers and employees to your business determine whether you need employers’ liability insurance. The contract you provide to your workers is not necessarily a formal written document. It could be a spoken agreement, an implied agreement, or a formal or informal written document. It does not matter what term you use to name the contract; it is this formal understanding, in whatever form, that sets out the terms of employment.
Anyone legally considered an employee, as per their contract needs to be protected by employers’ liability insurance. Whether they are labelled as employees or even if you consider them self-employed, if they satisfy the terms of being an employee then they should be included when arranging your insurance cover.
Consider the below questions to determine whether the people that work for you are defined as employees under the Employers’ Liability (Compulsory Insurance) Act:
Do you take care of their tax issues?
Employers responsible for their workers’ National Insurance contributions and income tax are likely to need employers’ liability insurance. If you do not make such deductions, then insurance may not be needed.
Do you have full responsibility for their working practices and where they work?
Employers whose contracts state they can control when and where their workers carry out their duties are likely to need employers’ liability insurance.
Employers working with people who have several contracts or also work for other people, such as independent contractors and consultants, may not need an insurance policy in place.
Do you supply all working materials and equipment?
Workers who have their equipment and materials provided are likely to be legally classed as employees. Therefore, they need to be covered by an employers’ liability insurance policy. Independent contractors and self-employed workers often use their own tools and may provide their own materials too; they should have their own insurance cover in place.
Do you make a profit from your workers’ efforts which you are not obliged to share with them?
When you legally employ someone you have a right to keep any profits made through the course of their work. Many employers choose to offer commission and performance pay but this is an incentive, not a compulsory requirement. If this is how your business operates then employers’ liability insurance is likely to be necessary. If you work with people who are demonstrably in business for their own personal benefit, then it is unlikely you will need employers’ liability insurance for them.
Do you treat your workers the same as employees?
If someone works for a business on a self-employed basis and they are found to carry out duties in the exactly the same manner as an employee, then it is likely an employers’ liability insurance policy is necessary to cover them. Anyone who does the same work under the same conditions as an employee, should be considered as such.
Does my Insurance Policy have to Cover my Employees Abroad?
Current legislation does not require businesses to have a policy in place to cover employees who are based abroad, such as those on secondment. It is essential that you check the laws where they are based, however, as you may be required to take out insurance fitting the laws of other regions.
If your employees usually work abroad but spend 14 days or more continually in the United Kingdom, or 7 days or more on an offshore installation, then you must have employers’ liability insurance for them, for the time they are in the country.
EMPLOYERS’ LIABILITY INSURANCE AND FAMILY BUSINESSES
We have already briefly covered the exemption family businesses have from employers’ liability insurance. However, the decision not to have a policy in place should not be taken lightly. It is worth considering the business survival plan should there be an accident or injury to an employee who is a family member.
Without employers’ liability insurance in place the costs resulting from accidents or injuries effecting a family member could negatively impact the business.
For example, if a family member were to fall, breaking their leg, they would be unable to work. This could leave the business short-staffed but also cause issues with the injured party due to loss of earnings and medical costs. There is also the risk to relationships within the family and it is something that most business owners do not consider worth the risk.
Many family businesses now see employers’ liability insurance as a prudent option for both protection of the business and of their employees (family or otherwise).
HOW DO YOU MAKE A CLAIM AGAINST YOUR EMPLOYERS’ LIABILITY INSURANCE?
If you become aware of a potential claim being made against your business, you must contact your insurance company as soon as possible. They will need to begin gathering evidence to prepare a defence. They will also need to see copies of any evidence you have to support your case. Evidence can include employee records, incident reports and any risk assessments you have in place.
Evidence can also be taken by your insurers in the form of interviews and discussions with your employees, including supervisors and members of staff who worked with the claimant. This process can be difficult as you may feel defensive and hurt by your employee’s actions but this is a professional situation. It needs to be handled with care, and with the full support of your chosen insurers.
It is important to remember that each insurer has their own terms and conditions and it is good practice to regularly familiarise yourself with these. There is a small risk you could invalidate your policy if you don’t have a good understanding of the expectations of your insurer. You can also become better acquainted with the claims process so you’re ready if an incident does occur. The better your understanding of the claims process and the terms of your policy, the easier it will be to effectively handle a claim, should one be made.
WHAT DOES YOUR EMPLOYERS’ LIABILITY INSURANCE COVER?
Your policy will provide you with financial cover for potential compensation and your legal defence fee for all claims brought against you by:
All permanent employees
Contract, seasonal and casual employees
Your policy should also provide you with cover for the following types of employee and worker:
Work experience students
People on work placements
Referees and marshals
Whilst the second set of employees should be considered equal to the first set, it won’t always be the case that insurance policies cover them as standard. If any of these groups are relevant to your business, then it is essential you discuss your requirements with potential insurers and look closely when considering different policies.
The potential compensation that a claimant can demand varies greatly. Most employee compensation claims include elements such as loss of earnings, future loss of earnings and pain, and suffering damages. If found negligent your company will be liable for these, as well as your own legal fees but all of this is covered by an employers’ liability policy. With no policy, your business has no protection and the financial burden may be enough to shut the business down.
The following are some examples of incidents likely to result in a claim:
An employee trips and falls in the workplace. They allege this was due to lack of care in keeping walkways clear and safe.
An employee is burnt or electrocuted whilst working for you and they allege they have not been properly trained to use the equipment responsible for the injury.
An employee contracts a respiratory disease due to working with hazardous materials and alleges the correct personal protection equipment, (PPE) was not supplied.
An employee falls from height and alleges incorrect equipment and/or inadequate training was provided.
These are just some examples of claims a business could face. All individual businesses have their own specific hazards and safety concerns. Each workplace and business needs to be considered on an individual basis. Full risk assessments should highlight potential hazards and how they are to be effectively and safely dealt with. Risk assessments are a valuable tool for planning staff training, organising appropriate personal protective equipment and creating a work environment with a positive attitude towards health and safety.
HOW TO AVOID EMPLOYEE COMPENSATION CLAIMS
One of your commitments as an employer is to your employees’ health and safety. You are legally obliged to provide a safe working environment. You must also have a health and safety policy in place. To comply with law, it needs to be a written document for all businesses with five employees or more but it is also a sensible idea for businesses of all sizes. The HSE state that most business health and safety policies include:
A statement of general policy on health and safety in the workplace and at work.
A responsibility section, detailing who is responsible for specific actions such as who has day-to-day health and safety management.
An arrangements section, detailing what you will practically do to achieve the aims set out in your general policy statement.
As well as your health and safety policy, regularly updated risk assessments should be in place for your workplace and also any specific equipment. It is also important for employers to question employees about pre-existing health conditions and disabilities to ensure the workplace is safe and appropriate for them. Often it is an accident that results in a compensation claim from an employee.
If an accident does occur then, as well as following the above procedure for informing your insurance company, you should also look for ways to learn from the accident. You should commence a full audit of your workplace and ensure safety standards are being met. You should ensure employees are fully trained for their roles and have all the knowledge they need to work safely and competently. This helps to protect your business against future claims and ensures the same accident can never occur again.
Not all claims against your business are avoidable. However, a commitment to providing a safe, healthy workplace and workforce minimises the risk. This ensures that your employers’ liability insurance policy is a failsafe, not something you become reliant upon.
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If you employ people to work for your business and help it to grow and succeed, then they deserve to be protected in the event of accident or injury. You have both a moral and legal obligation to your employees. Ignoring your legal obligations can result in penalty fines and no protection should a successful claim be made against your business. Ultimately, being uninsured could result in your business closing. Do you really want to risk that?
Employers’ Liability Insurance is an enforceable legal requirement. If you have people working for your company as employees, it is essential.
A minimum cover of £5 million is necessary to comply with law.
Being underinsured can be as costly as not being insured at all. Make sure you carry out a full risk assessment of your workplace before looking for an insurer, so you have answers to all their questions when assessing the premium you should pay.
Employers’ Liability Insurance will not stop accidents happening, it will just provide you with financial cover if they do. Your duty of care to your employees goes beyond insurance and you should ensure your workplace is safe.
You face fines of up to £2,500 per day if you are not properly insured.
constructaquote.com is an insurance broking service dedicated to the UK SME market having developed valued partnerships with the UK’s leading insurers.
constructaquote.com differs to other insurance websites in that we specialise in niche markets including construction, trade and consultants. We bring together the insurance products relevant to you and your business, so that you can arrange all the commercial policies you require in one place.
The products on offer from our partners are varied, ranging from public and employer liability insurance and professional indemnity, to insurance cover for your plant & machinery, van insurance and goods in transit. The simple search facility makes it easy for you to combine any number of policies to meet your insurance requirements.
constructaquote.com can take the worry out of ensuring you have the necessary insurance policies to run your business legally and efficiently.
What do we do?
Using a panel of well-known insurance providers we provide you with instant value-for-money quotations with insurance products created for tradesmen, consultants, landlords and more. You enter your details once and we do the rest. By visiting our dedicated product pages, you can request and choose policies to suit your business, however large or small.
We also support you by providing all the information you need to make an informed decision up front, before you buy. We take the hassle and cost out of ensuring you have the appropriate cover to run your construction business.
How do we do it?
In order to provide you with low cost insurance cover, we don’t charge you; we simply inform you of the quotes on offer from our partners, saving you both time and money. Our insurers pay us commission every time we pass your business onto them, which means we can continue to provide this service, and keep your insurance costs down.
We believe in providing a reliable, transparent service, meaning you can get on with what you do best – managing your business.
We’re not your run-of-the-mill insurance broker; we’re passionate about business and believe honesty is our best policy.
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If you require any further information with regards to public liability or employers liability insurance, or any business insurance matter, then please call one of our dedicated agents on 02920 808957 who are on hand to help Monday – Thursday 8.30 – 8pm, Friday 8:30 – 5pm and Saturday 9am – 1pm.