Employer's Liability insurance (EL) is the most misunderstood cover that is available for the small business owner today. The rules and regulations surrounding it can be extremely confusing, even Government is uncertain at times. However, don't let that put you off, as the Health and Safety Executive (HSE) would be quick enough to prosecute you if they thought you should have it and you didn't and there was an accident with someone who was employed.
If you don't have Employer's Liability insurance cover when you should have then you could be taken to court and prosecuted. The maximum penalty is 14 years in jail and an unlimited fine, although this would usually be as a result of an accident to someone who was employed. However, you could face a large fine and be disqualified from running a company just for having incorrect insurance. For that extra premium, it really isn't worth it.
Do I really need it?
Firstly, if you are a husband and wife team, or your sons/daughters assist then you generally do not need Employer's Liability insurance. If you're in doubt, then usually a good way round it is to insure them jointly with you. The exception to this is if you are a Limited Company with 2 or more working directors then you MUST by law have this cover, even if you are a husband and wife team under the Employer's Liability (Compulsory Insurance) Act 1969. There is an exception to this legal requirement which is a Limited Company with only ONE working person who is a director and owns fifty percent or more of the issued share capital, i.e. there are no other persons whatsoever doing any work in the company.
It is also usual for Employer’s Liability to be required if you have work experience students or volunteers assisting you, even if there is no payment. Don't be fooled - you may only have a "friend" assist you, who is not getting any payment but if something happens to them, even if they don't try and sue you, the HSE may take up the matter or indeed the Police may decide to prosecute for negligence. Remember, Employer Liability is dealt with under criminal law - the same as murder, assault, and arson!
Could I be held responsible if someone injures themselves whilst following instructions from me?
Absolutely yes! The easy way to define the differences between Employer’s Liability and Public Liability (PL) would be to use the example of a wedding. If you gather the bride, groom and all the family together and ask them to step back and one of them falls off a ledge and injuries themselves - that would be a claim under Public Liability. If the same thing happened with a student that you were training or an assistant the cover would be under EL.
What is the definition of an employee?
This is where the Employer Liability regulations get confusing. For example, someone that assists you to whom you pay a "day rate" would be classified as an employee even though you are not responsible for their tax and national insurance contributions!
You are responsible for the health and safety of your employees while they are at work. Your employees may be injured at work, or they or your former employees may become ill as a result of their work while in your employment. They might try to claim compensation from you if they believe you are responsible. The Employer’s Liability (Compulsory Insurance) Act 1969 ensures that you have at least a minimum level of insurance cover against any such claims.
In general, you may need Employer’s Liability insurance for someone who works for you if:
- You deduct NI and income tax from the money you pay
- You have the right to control where and when they work and how they do it
- You supply most materials and equipment
- You have a right to any profit your workers make although you may choose to share this with them through commission, performance pay or shares in the company
- You require that person only to deliver the service and they cannot employ a substitute if they are unable to work
- They are treated in the same way as other employees, e.g. if they do the same work under the same conditions as someone you employ
In general, you may NOT need Employer’s Liability insurance for people who work with you if:
- They do not work exclusively for you (e.g. as an independent contractor)
- They supply most of the equipment and materials
- They are clearly in business for personal benefit
- They can employ a substitute
- You do not deduct tax and NI. However, even if someone is self-employed for tax purposes, they may be classed as an employee for other reasons and you may still need (EL) to cover them
These are only guidelines, you have to decide yourself if your situation would fall into either of these categories, although my advice would always err on the side of caution if in doubt!
Further information can be obtained from the Health and Safety Executive and you are advised to check your own requirements by going to www.hse.co.uk or, for a quick guide to http://www.hse.gov.uk/pubns/hse40.pdf