Employers’ liability insurance is a legal requirement for limited companies that employ even just one person. This can be someone permanent, temporary, casual, hired for a contract of service, or an apprentice. It covers the legal costs and compensation claims from current or past employees in the event of injury, illness or death, which are alleged to have been caused by the business. Employer’s liability insurance is the only type of limited company insurance that is required by law (although regulatory or professional bodies might require other types).

Any business that does not have employers’ liability insurance can be fined £2,500 a day until coverage is in place. The Health and Safety Executive (the Government’s national body responsible for safety in the workplace) can also demand to see proof of insurance. It can issue a £1,000 fine if a business cannot show it has employers’ liability insurance.

Even with insurance, businesses are expected to take adequate measures to protect employees. Insurers have the right to sue a policyholder if it is found to have been negligent in safeguarding their staff.

A business must display proof of its employers’ liability insurance in the work premises or online, available for all members of staff to see.

Insurers must be authorised, meaning they work under the terms of the Financial Services and Markets Act 2000. If the insurer is not authorised, a policyholder may be breaking the law. Anyone can check if the insurer is authorised by searching the Financial Services Authority’s register or calling 0845 606 1234.

Horse riding businesses must hold public liability insurance by law, according to the Association of British Insurers, although no other industry is legally required to have it. Public liability insurance, as explained above, protects a business of claims of injury or damage to property damage from third parties.

Employers’ liability for limited companies

If a limited company employs any members of staff – permanent, temporary, casual, an apprentice, or hired for a contract of service, it needs employers’ liability insurance by law. This insurance will cover the costs of legal representation and compensation claims in the event of a past or current employee becoming ill, injured or dying, and the business is blamed.

Businesses must be covered for at least £5 million, the Health and Safety Executive states. However, more is often taken out if a business has a large number of employees or works in a more risky industry.

For businesses concerned about the status of someone carrying out work for them, but is not a permanent member of staff, here are several scenarios where employers’ liability insurance is needed:

• Most of the equipment the worker uses belongs to the business.
• The business controls where and when someone works and the processes they follow.
• The business has a right to the profit made.
• The business deducts national insurance and income tax from the money it pays someone.
• The worker is treated the same as members of staff.
• The business does not allow the worker to employ someone else to do the work if they are unable to.

There are a few exceptions when employers’ liability insurance is not needed:

• If a business does not deduct national insurance and income tax from someone.
• A worker is not based in Great Britain for 14 continuous days (or seven offshore installations).
• They work as an independent contractor and can hire someone else to do the work on their behalf.
• The business does not supply the majority of the equipment they use to carry out their job.
• A worker operates as a business.
• A worker is a close family member.

Volunteers, work experience and students should be covered under employers’ liability insurance, but it is worth checking before someone starts their placement.

Employers’ liability insurance can be costly compared to other types of business insurance. Still, ultimately, costs depend on the number of employees hired, plus the riskiness of the work carried out.

Research by insurance experts NimbleFins found the average cost of one office worker in low-risk industry costs as little as £52 a year to insure, but the cost of one employee out on the field in a low-risk job (e.g., a caterer) can cost 3-4X as much. One employee in a high-risk job (e.g., a builder) can cost close to £300 a year.

Each additional employee is generally cheaper to insure, bringing the average cost down further and further the more employees a business has.

In summary

Limited companies are not required by law to hold most types of business insurance, but they are required to hold employers’ liability insurance if they hire any employees. Failing to get the right coverage in place can lead to hefty fines.