Do Small Businesses Need Employers’ Liability Insurance?

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If you have any employees – casual or permanent, full-time, part-time or piecemeal, voluntary or paid – then you must have Employers’ Liability in place.  It must be for a minimum sum assured of £5million and if you don’t have it then the Health and Safety Executive can prosecute you and you’ll be fined a huge sum for each day you should have had it but didn’t.   You can also end up with a prison sentence of up to 14 years.

Employers Liability Insurance is designed to protect your employees.  If they are injured or killed at work due to some negligence on behalf of the business then they (or their next of kin) can sue for damages/compensation for their pain and suffering and for any associated losses.   If they sued and won their case, their compensation could come out of your business or personal assets (if you’re not a limited company) but those assets, particularly if you’re a small business, would be unlikely to cover the cost of the claim.

Employers’ Liability Insurance is there not only to pay out the compensation ordered, but also to pay for any lawyers’ fees (your own or those of the employee) which in themselves could run into several thousands of pounds.

Small businesses normally use close relatives to carry out the necessary work.  The good news is that close family members are not normally classed as ‘employees’ in these circumstances and you wouldn’t need Employers’ Liability Insurance for their benefit (though of course it might be helpful, particularly if their ability to work would affect the running of the business).  If yours is a limited company then you would have to have Employers’ Liability Insurance even if it were a close relative working for you.

If you should have Employers’ Liability Insurance but don’t then even if your employee didn’t sue for damages under civil law, or even if they lost their claim, the Health and Safety Executive or Police could still press charges under criminal law.

To work out whether you have an ‘employee’ or not for these purposes, think about these elements:

–          Do you pay them?

–          Do you pay their tax and national insurance?

–          Do you supply the equipment for their work?

–          Do you tell them how, when and where to work?

If the answer to any of these is ‘yes’ then you have an employee.  If you are in any doubt seek advice from a solicitor.  It will be far cheaper than paying either unnecessary Employers’ Liability Insurance premiums or paying compensation and/or a fine for not having it in place when you should.