Employers’ liability insurance will cover a business in the event that any of its employees become ill, or are injured in the workplace, due to the negligence of the employer.
This type of cover protects employers against claims for injury, illness, disease or even death caused to an employee, as a result of carrying on their work for your business.
An insurer will pay out for any medical costs and damages incurred, as well as the legal fees associated with any claims made against you.
Clearly, if you intend to employ anyone else via your company (rather than on a business-to-business basis), you must take out EL cover.
Do I have to have EL insurance?
Most businesses are required, by law, to take out Employers Liability Insurance (even if it doesn’t seem to be necessary due to the line of business you’re in). (The Employers’ Liability (Compulsory Insurance) Act 1969 – see here)
The Act requires employers to have £5m of cover, although most insurers provide £10m as standard.
In fact, if you are not adequately covered, you could be fined up to £2,500 for each day your business is not covered!
However, since 2005, limited companies with a sole employee (where that employee owns 50% or more of the share capital) are not legally required to take out EL cover.
Sole traders who don’t have any employees (or just close family members) are also exempt.
Despite the lack of a legal requirement, many contractors decide to take out employers liability cover anyway, as a result of the Intermediaries Legislation (see below).
If you are employed by a PAYE umbrella scheme, you will probably already be covered by a comprehensive business insurance policy. Check with your umbrella scheme provider if you are unsure.
EL insurance and IR35
Many contractors do opt to take out EL cover anyway, as not only can this provide peace of mind, and can also provide another pointer towards ‘self-employed’ status, as per the IR35 rules.
In order to have a genuine ‘right of substitution’ in your contract wording, you would need to have employers’ liability cover in place in order to cover any ‘substitute’ in the event that you were unable to fulfil the terms of your contract.
How do I get a quote?
EL insurance is often included in the majority of insurance packages marketed to contractors, and you may find that the cost of purchasing public liability cover and Professional Indemnity as separate policies may actually be higher than buying a combined business liability policy.