Employers’ liability insurance is a type of insurance coverage that protects businesses against claims made by employees who have suffered injury, illness, or death as a result of their work. It provides financial support to the employer to cover legal costs and compensation payments that may arise from such claims.
Employers’ liability insurance is a legal requirement to make sure that your business has suitable cover in place and is a requirement for almost any business with more than one employee – and this applies to full-time and part-time members of staff.
This type of insurance is essential for all businesses, regardless of their size or industry. It ensures that employers can meet their legal obligations and provide compensation to employees if they become injured or ill while working for them. Without this insurance, businesses may face substantial financial liabilities that could have a devastating impact on their operations.
Why is employers’ liability insurance important?
Employers’ liability insurance is important to your business for a three reasons: Firstly, it is a legal requirement in the UK (and many other countries) for businesses to have this insurance in place. Failure to comply with this requirement can lead to severe penalties, including hefty fines and even criminal charges.
Secondly, this type of insurance protects a business from potentially catastrophic financial losses. If an employee is injured or becomes ill due to their work, they have the right to pursue a claim for compensation. The costs associated with such claims can be significant, including legal fees, medical expenses, and compensation payments. Employers’ liability insurance ensures that businesses have the necessary financial resources to handle these costs and continue their operations.
Thirdly, this type of insurance demonstrates a business’s commitment to its employees’ welfare and safety. It sends a clear message that the employer takes their responsibilities seriously and is prepared to provide compensation and support in the event of an accident or illness.
Businesses must have adequate insurance coverage to protect their employees: under the Employers’ Liability (Compulsory Insurance) Act 1969, in the UK employers are legally obliged to have employers’ liability insurance if they employ one or more people. The minimum coverage limit is £5 million, and businesses can face fines of up to £2,500 for each day they do not have the required insurance in place. You can find the full guide to the Act on the Government’s HSE website.
It’s important that you are aware of the specific legal requirements in your country and for your sector as failure to comply with these requirements can have severe consequences, both financially and legally.
Display the insurance certificate
However, along with the correct insurance cover you must display your insurance certificate for employees. You can be fined £1,000 if you don’t display your employers’ liability insurance certificate clearly so that your employees can see and know when to find it.
Do I need employers’ liability insurance?
The UK Employers’ Liability Act requires any company with one or more employees to have employers’ liability insurance. However, there are some exceptions:
You do not need to have this insurance if:
- you are a family run business and all the employees are related to you and the business is not a limited company (note that if it is a limited company, you will need insurance)
- you run a limited company and you are the only employee
- you only employ independent, self-employed contractors – though you should make certain that the contractors follow the HMRC guidelines defining self-employed
How does employers’ liability insurance work?
Employers’ liability insurance operates on the principle of indemnity. This means that if an employee makes a successful claim against the employer, the insurance company will cover the costs associated with that claim, up to the policy limit.
When a claim is made, the employer must notify their insurance provider immediately. The insurance company will review the claim and conduct an investigation to determine its validity. If the claim is deemed valid, the insurer will provide financial support to cover the legal fees, compensation payments, and any other costs associated with the claim.
It is essential for employers to cooperate fully with their insurance provider during this process. Failure to do so may result in the insurance company denying coverage or reducing the amount of compensation they provide.
Types of claims covered
Employers’ liability insurance covers a wide range of claims related to employee injuries and illnesses. Some common types of claims include:
- Accidents in the workplace: This includes slips, trips, falls, and other accidents that occur on company premises.
- Occupational illnesses: Claims can arise from exposure to harmful substances, such as asbestos or chemicals, or from repetitive strain injuries caused by poor ergonomics.
- Work-related injuries: Claims may result from accidents that occur while traveling for work or using company vehicles or equipment.
- Stress-related illnesses: Claims can arise from work-related stress, such as bullying or excessive workloads, leading to conditions like anxiety or depression.
However, remember that this type of insurance might not cover claims resulting from intentional acts or gross negligence.
There are several misconceptions surrounding employers’ liability insurance that can lead to businesses being in breach of their legal requirements – here’s a trio of the most common misconceptions:
- “I don’t need employers’ liability insurance because my business is low-risk.” Every business, regardless of its perceived risk level, should have employers’ liability insurance. Accidents and illnesses can happen in any workplace, and failing to have insurance in place can have severe consequences.
- “I am a sole trader, so I don’t need employers’ liability insurance.” Even if you are the only employee in your business, you may still need employers’ liability insurance if you have volunteers or contractors working for you.
- “My employees are like family, and they would never sue me.” Accidents and injuries can strain even the best relationships. It is essential to have insurance in place to protect both the employer and the employee in the event of an accident or illness.
What to look for when choosing your policy
Here are our top four points to look out for when you’re selecting your company’s employers’ liability policy:
- Coverage limits: Ensure the policy provides sufficient coverage to meet the legal requirements in your jurisdiction and protect your business adequately.
- Exclusions and limitations: Review the policy carefully to understand what types of claims are covered and any exclusions or limitations that may apply.
- Claims handling process: Consider the insurer’s reputation for handling claims efficiently and fairly. Prompt and fair claims settlement is crucial in times of crisis.
- Premium costs: While cost is a factor, it should not be the sole consideration. Balance the premium costs against the coverage and service provided by the insurer.
The cost of employers’ liability insurance
The cost of a policy varies depending on the type of business, the number of employees, the industry, and any claims history. Generally, businesses with higher-risk activities or larger workforces can expect to pay higher premiums.
You should try and get quotes from different insurers to ensure they receive the most competitive pricing. Additionally, implementing robust health and safety measures and demonstrating a commitment to risk management can help lower insurance costs.
Employers’ liability insurance is not just a legal requirement; it is a vital tool for protecting businesses and their employees. It ensures that employers can fulfil their legal obligations, provide compensation to injured or ill employees, and safeguard their financial stability.
Understanding the importance of employers’ liability insurance and the legal requirements in your jurisdiction is crucial for every business owner. By choosing the right policy, taking appropriate steps in the event of an accident or claim, and implementing effective risk management strategies, employers can protect their business and demonstrate their commitment to their employees’ welfare.