Do you need employers liability insurance as an IT contractor?

Employer’s Liability insurance protects a business against claims for injury, illness, disease or even death caused to an employee, as a result of their carrying on 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.

If you intend to employ anyone else via your company (rather than on a business-to-business basis), you must take out EL cover.

Is EL insurance compulsory for IT contractors?

Most businesses are required, by law, to have Employers Liability Insurance, even if it doesn’t outwardly seem necessary due to the line of business you’re in.

This obligation is contained in the Employers’ Liability (Compulsory Insurance) Act 1969 – see here.

All businesses must have £5m of cover in place, 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!

Many IT contractors are excluded

Following a change to the law made in 2005, some businesses no longer have to take out insurance:

  • Limited companies with a sole employee – where that employee owns 50% or more of the share capital.
  • Sole traders who don’t have any employees (or just close family members) are also exempt.

Despite the lack of a legal requirement, many limited company contractors decide to take out employers’ liability cover anyway.

What about if you are an umbrella company contractor?

If you are an umbrella company contractor, your provider should automatically provide comprehensive business insurance for its employees. Check with your umbrella provider if you are unsure.

Is employer’s liability insurance worth it?

Even if you don’t have to take out EL cover, there are several reasons why you should do so.

Clients and agents often insist that contractors have business insurance in place. This includes – typically – professional indemnity, public liability and employers’ liability insurance.

If your company has business insurance in place, it is one of many indicators that you are in business on your own account, rather than a ‘disguised employee’ as per the IR35 rules.

How do I get a quote?

EL insurance is often bundled into a small business or contractor package.

You may find that the cost of purchasing public liability and Professional Indemnity as separate policies may be higher than buying a combined business liability policy.

You can get a quote via our long-term insurance partner, Qdos.

Professional Indemnity Insurance for Contractors

Industry leading PI insurance - from just £13.50 per month via Qdos. Business liability and IR35 insurance cover also available.

Last updated: 7th February 2024