You may have heard of Employer’s Liability Insurance. But what is it? Do you really need it? And how much trouble will you get into if you don’t have it? Read on - Rhino has all the answers.
Introduction to Employer’s Liability Insurance
If you’re an employer in the UK, you must insure yourself against liability for personal injuries to your employees.
You must do this by taking out Employers Liability Insurance – a policy which has two main functions:
- It protects you against the costs arising from claims for compensation in cases where an employee is injured as a result of working for you.
- It offers assurance for your employees by ensuring that their costs will be covered should they become injured as a result of working for you.
This type of insurance is important for any business, as if an employee were to suffer from an injury or illness as a result of their job, the employer has the responsibility to compensate them. Without it, employers would find themselves having to pay for compensation claims from workers out of their own personal or business finances – which is not a reliable or practical solution.
A Brief History of Employer’s Liability Insurance
Before 1880, if someone had an injury at work that was their employer’s fault, there was nothing they could do, legally speaking. The first Employer’s Liability Act was passed in 1880 to empower Victorian-era workers to seek compensation for injuries arising from employer’s or fellow employee’s negligence. If they died as a result of an accident, a representative (usually next of kin) would receive the compensation. The Act was good news for workers, but it relied on the employer’s ability to pay (e.g., the employer wasn’t going bankrupt), plus the amount a worker (or their representative) could receive was capped at three year’s salary.
By 1969, the government went a step further to protect employees’ interests, and those of the employers themselves. The Employer’s Liability (Compulsory Insurance) Act 1969 was passed to make it compulsory for employers in the UK to hold insurance to cover claims from employees. It meant that no matter the state of the business’s finances, the funds to compensate the injured employee would always be readily available via a third-party insurer.
The Employer’s Liability (Compulsory Insurance) Act 1969 states that all employers hold insurance of at least £5 million. You can take out your Employer’s Liability Insurance from any authorised provider of your choice. They must be registered with the Financial Conduct Authority (FCA), (don’t worry – Rhino’s insurers are).
What sort of claims does Employer’s Liability Insurance cover?
This policy is designed to cover claims against businesses resulting from bodily injury to an employee. The injury must be arising out of and in the course of employment by you in connection with your business.
At Rhino, Employer’s Liability Insurance can only be purchased alongside Public Liability Insurance to cover claims from both your employees and the public. Tradespeople who have employees need both policies, so it makes sense to combine them and save a few quid while you’re at it.
Understanding Coverage: Who is Covered Under Employer’s Liability Insurance?
Most forms of worker are covered under Employer’s Liability Insurance. According to legislation.gov.uk, the term “employee” means:
“An individual who has entered into or works under a contract of service or apprenticeship with an employer whether by way of manual labour, clerical work or otherwise, whether such contract is expressed or implied, oral or in writing.”
This covers even apprentices and casual workers, including:
- Part-time employees
- Volunteers
- Temporary employees
- Apprentices
Contractors and subcontractors can be a grey area. Essentially, if they work for themselves and do not count as employees of yours, they won’t need to be covered by Employer’s Liability Insurance. A rule of thumb is that if you do not deduct income tax or National Insurance from their wages then they’re a bona-fide contractor or subcontractor and you won’t need Employer’s Liability Insurance to cover them.
Exceptions: Who Doesn’t Need Employer’s Liability Insurance?
There are exemptions in Employer’s Liability cover. Some employers, including the NHS, armed forces, as well as local councils are exempt from requiring Employer’s Liability Insurance.
Some workers are also exempt. If your employee is a close family member (specifically your husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother or half-sister), then Employer’s Liability Insurance won’t be required.
The Financial and Legal Implications of Non-Compliance
Penalties for non-compliance are significant. If you employ any non-exempt worker without having Employer’s Liability Insurance, then you’ll be subject to a fine of £2,500 from the UK government. This is not a one-off fine – it’s per day! Therefore, it’s really not an option to go uninsured for even 24 hours.
When you take out Employer’s Liability Insurance, you will be given a certificate of insurance. You must display this certificate – or a copy – at your business premises where your employees can see it. It’s also mandated that you should produce the certificate for inspection at any time when an authorised inspector requests to see it. Failure to display your certificate (or a copy) will result in a £1,000 fine, so again – this is not a rule you can bend.
Insurance Claims: What Businesses Should Know
When it comes to the Employer’s Liability claims process, it’s important to know that you have to act fast. Your insurer will want to know as soon as is practically possible about any employee incident that could give rise to a claim. This includes reporting under RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 1995).
Contact your insurer in the method specified in your policy wording (usually email, online claims form or telephone). If you receive a claim form, summons or letter of claim, or any other written notification of a claim, this should be forwarded to your insurer immediately. Similarly, any notice of prosecution or enquiry against you should be passed on to your insurer as soon as you are made aware of it.
It’s also vital to know that you should not answer a claim until you’ve discussed the claim with your insurer. This includes, but is not limited to, giving an offer or promise of payment to the injured party. Doing so could invalidate your policy.
Evaluating Insurance Needs: Factors to Consider for Optimal Coverage
The first thing you should know when deciding how much Employer’s Liability Insurance coverage you might need is that claim amounts can be extremely high. Although the law stipulates you need a minimum of £5 million in indemnity, many businesses choose to go for £10 million indemnity limit.
Up to a point, it depends on the size of your business and the type of work you carry out. But in the trades, there’s no such thing as a low-risk industry. When you consider the equipment, tools, hazardous materials and dangerous sites that your average tradesperson is exposed to, it makes sense to go for a limit that would cover anything that could go wrong.
If you’re unsure of how much Employer’s Liability Insurance you should take out, speak to Rhino Trade Insurance. Our expert team deal with tradespeople day in, day out and we will give you reliable, honest advice.
