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Employer's Liability Insurance - what to know


Case study


A linen manufacturer has been fined for failing to provide Employers’ Liability (Compulsory) Insurance.


After an anonymous complaint was received, the HSE carried out an inspection at the site.

The court heard that during the inspection it became clear that the company didn’t have Employers’ Liability (Compulsory) Insurance.


The company pleaded guilty to breaching Section 1(1) of the Employers’ Liability (Compulsory) Insurance Act 1969. They were fined £2,500 with costs of £429.89.


What the law says:


Under the Employers’ Liability (Compulsory Insurance) Act 1969, all employers in the UK must have a minimum level of insurance cover so that compensation can be paid to employees if they are injured or suffer ill health because of work they’ve carried out for their employer.


As soon as a person becomes an employer, they must take out Employers’ Liability insurance. The policy’s cover must be at least £5 million and the insurer providing it must be authorised.

This means that the insurer/broker is an individual or company working under the terms of the Financial Services and Markets Act 2000. If the employer is unsure about the status of the insurance provider, they can consult a register of authorised insurers maintained by the Financial Conduct Authority (FCA). https://www.fca.org.uk/firms/financial-services-register


If the employer only employs a family member, or someone who is not based in the UK, they may not need Employers’ Liability insurance.


Employers’ Liability Insurance will be needed in situations where:


  • the employer deducts national insurance and income tax;

  • the employer has the right to control where and when the worker carries out their work and the way that they do so;

  • the employer supplies the worker’s materials and equipment;

  • the employer has the right to any profit made by the workers;

  • the employer requires that only the worker can deliver their services and can’t employ somebody else to do so;

  • the employee/worker operates under the same conditions as other employees.


Penalties for not having Employers’ Liability insurance can be heavy. For every day that the employer is not properly insured, they can be fined £2500. They can also be fined £1000 if they don’t display their insurance certificate, or refuse to show it to inspectors if requested.


An employer must ensure that they have met their legal responsibilities for the health and safety of their employees – carrying out suitable and sufficient risk assessments, taking all reasonably practicable measures to protect employees and reporting incidents.


If the insurer thinks that the employer hasn’t done this and that the lack of action has led to a claim being brought, specific clauses in the policy may allow the insurer to take action against the employer to recover the cost of the compensation paid.


Do I need to tell my employees that I have employers’ liability insurance?


The certificate of insurance must clearly state the minimum level of cover provided and the companies covered by the policy. The certificate of insurance should be displayed in a position where it can be easily read by employees.


This can be done electronically although employers do have to make sure that their employees know where to find this information.


Does the law apply to me?


There are certain exemptions from the requirements of the Employers’ Liability (Compulsory Insurance) Act:

  • most public organisations;

  • health service bodies;

  • some other publicly-funded organisations;

  • where a company’s sole employee is the owner and that employee also owns more than half of the company’s issued share capital;

  • family businesses, as long as all employees are closely related to the employer. However, this doesn’t apply if the business is incorporated as a limited company.


Do I need to keep copies of certificates of insurance which are out of date?


Although there hasn’t been a legal requirement to keep copies of out of date insurance certificates since 2008, it’s a good idea to maintain a record of liability insurance, and that may include copies of old certificates. That’s because there are some industrial and work-related diseases and complaints that don’t show up for many years. If a claim arises because of one of these conditions, the employer will need evidence to show that while the employee worked for them, there was liability cover in place.


What happens if I don’t have employers’ liability insurance?


The law on Employers’ Liability Insurance is enforced by the HSE and inspectors can check that a business holds liability insurance and that it complies with the requirements on the amount of cover and authorised insurer status.


If they ask to see the certificate, the employer must comply or be fined up to £2500 for any day where suitable insurance is not held. Not displaying the certificate or not making it available to an HSE inspector can incur a fine of up to £1000.