Employers’ liability insurance: do sole traders need it?

Employers’ liability insurance is a business insurance policy that virtually all firms employing people are required to have by law.

If you are a sole trader with no employees, you are not legally required to take out employers’ liability insurance.

The fines for not having a suitable policy can be huge, so here’s what every business owner needs to know about this type of insurance.

As an employer, you are responsible for the health and safety of your employees while they are working for you.

Having cover in place ensures your business has a minimum level of protection if an employee is injured or becomes unwell while in your employment and seeks compensation from your business.

If you’re in a hurry, you can get an instant online quote from Qdos.

What is employers’ liability insurance?

When employees work for you, the employer, you are responsible for their health and safety. So, if an employee is hurt at work or develops a work-related illness, they might blame you and try to claim damages.

The legal requirement for employers to purchase employers’ liability insurance was introduced under The Employers’ Liability (Compulsory Insurance) Act 1969.

The Act requires virtually all employers to have a minimum level of insurance to cover employee compensation claims.

Employers’ liability insurance will enable you to meet the compensation costs for your employees’ injuries or illnesses, whether they are caused on or off-site.

However, any injuries and illnesses relating to motor accidents that occur while your employees are working for you may be covered separately by your motor insurance.

The Health and Safety Executive (HSE) is responsible for enforcing the law on employers’ liability insurance.

When businesses are NOT required to have employers’ liability insurance

There are very few exceptions to the legal requirement that any firm with employees carry employers’ liability insurance (EL insurance).

However, there are two scenarios where a small business or start-up may be exempt from having to buy employers’ liability cover, these are;

1. For limited companies

If you are a director of a limited company, own at least 50% of the shares, and have no other employees, you are not legally required to purchase employers’ liability cover.

2. For unincorporated businesses (sole traders and partnerships)

If your unincorporated business is operated as a sole trader or a partnership, and the business employs only close family members, then the law does not require you to have employers’ liability insurance.

This exemption does not apply to limited companies, even if family members are employed.

HSE defines close family members as: husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother or half-sister.

EL insurance is needed even if you only employ occasional or temporary staff

Even if you do not employ any full-time staff but occasionally take on temporary or seasonal staff, you will still need to take out employers’ liability insurance.

If you’re not sure whether you need cover, a good guide is to consider whether you dictate when and where someone works, and whether you deduct their income tax and national insurance contributions.

This is particularly relevant for sole traders, who often mistake subcontractors or freelancers for employees.

If the answer is ‘yes’, they likely count as your employees.

What is covered by employers’ liability insurance?

As the name suggests, employers’ liability insurance is designed to protect business owners and operators against some of the most commonly encountered risks associated with hiring employees.

This usually includes illness and injury that occurs on business premises, or as a direct result of the individual’s working practices.

It may not include incidents that occur while driving, but the business’s motor insurance policy will usually cover these separately.

Employers’ liability insurance, as the name suggests, relates only to the individuals employed by your company, and not to any visitors to your premises.

Look out for potential risks at your workplace for anyone who isn’t an employee, such as members of the public or visitors to your premises, as you will need public liability insurance to cover them.

How much does this type of cover cost?

All insurance is priced on criteria such as your perceived level of risk, any history of claims made or of going for long periods without making a claim, and the total amount of cover you need.

The higher the potential payout, the more you’ll usually have to pay for your cover. However, it’s important not to cut costs too much in this area, and leave yourself liable for a substantial payout if the worst happens.

Strike the right compromise between your short-term budget and your long-term need for financial protection, and you will not only ensure that your employees are protected against monetary loss in the event of an incident but also that your business will be able to continue operating in such circumstances.

Most insurers will automatically provide you with £10 million of cover, which should be sufficient for your small business. The minimum level of cover required by law is £5 million.

How do I take out a suitable policy?

The first step towards arranging cover is to get a quote from a reputable insurer who works with sole traders.

You may also be able to arrange combined business insurance that covers all the insurance your business needs.

Combining multiple business insurance policies into a single policy can reduce your total insurance costs compared with purchasing separate policies from different insurers.

Another benefit is that it can save valuable time and make it easier to administer your cover renewals each year.

Get an instant online quote

We recommend Qdos. Qdos offers a specific employers’ liability insurance policy for both sole traders and limited company owners.