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Employers Liability

Employers Liability Explained

 

Employers are responsible for the health and safety of their 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 Employers’ Liability (Compulsory Insurance) Act 1969 ensures that you have at least a minimum level of insurance cover against any such claims.

Employers’ liability insurance will enable you to meet the cost of compensation for your employees’ injuries or illness whether they are caused on or off site. However, any injuries and illness relating to motor accidents that occur while your employees are working for you may be covered separately by your motor insurance.

Public liability insurance is different. It covers you for claims made against you by members of the public or other businesses, but not for claims by employees. While public liability insurance is generally voluntary, employers’ liability insurance is compulsory. You can be fined if you do not hold a current employers’ liability insurance policy which complies with the law.

If any of your employees are normally based in England, Scotland or Wales (including offshore installations or associated structures) you must have employers’ liability insurance. Under the law in Great Britain you do not need employers’ liability insurance to cover any of your employees who are based abroad (eg if they are on secondment). However, you should check whether the law in the country where they are based requires you to take out insurance or take any other measures to protect your employees. If any of your employees are normally based abroad but spend more than 14 days continuously in Great Britain, or more than seven days on an offshore installation, under the law in Great Britain you will need employers’ liability insurance for them.

You need employers’ liability insurance unless you are exempt from the Employers’ Liability (Compulsory Insurance) Act. The following employers are exempt:*

  • Most public organisations including government departments and agencies, local authorities, police authorities and nationalised industries;
  • Health service bodies, including National Health Service trusts, health authorities, primary care trusts and Scottish health boards;
  • Some other organisations which are financed through public funds, such as passenger transport executives and magistrates’ courts committees;
  • Family businesses, ie if all of your employees are closely related to you (as husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother or half-sister). However, this exemption does not apply to family businesses which are incorporated as limited companies;
  • Companies employing only their owner where that employee also owns 50% or more of the issued share capital in the company.

* Further exemptions from the need to have employers’ liability insurance are listed at section 3(1)(a) and section 3(1)(b) of the Employers’ Liability (Compulsory Insurance) Act 1969, and Schedule 2 to the 1998 Regulations.

You are only required by law to have employers’ liability insurance for people who you employ under a contract of service or apprenticeship.

Whether or not you need employers’ liability insurance for someone who works for you depends on the terms of your contract with them. This contract can be spoken, written or implied. It does not matter whether you usually call someone an employee or self-employed or what their tax status is. Whether you choose to call your contract a contract of employment or a contract for services is largely irrelevant. What matters is the real nature of your relationship with the people who work for you and the nature and degree of control that you have over the work they do.

The following paragraphs may help give you some indication of whether or not a person is an employee under the Employers’ Liability (Compulsory Insurance) Act. However, it is for you to satisfy yourself of the status of the persons working for you and if you have any doubts, you should seek legal advice.

You may need employers’ liability insurance for someone who works for you where:

  • you deduct national insurance and income tax from the money you pay them;
  • you have the right to control where and when they work and how they do it;
  • you supply their work 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 do the work; or
  • they are treated in the same way as other employees, for example, they do the same work under the same conditions as someone else you employ.

You may not need employers’ liability insurance for people who work for you where:

  • they do not work exclusively for you (for example, if they operate as an independent contractor);
  • they supply most of the equipment and materials they need to do the job;
  • they are clearly in business for their own personal benefit;
  • they can employ a substitute when they are unable to do the work themselves;
  • you do not deduct income tax or national insurance. 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 employers’ liability insurance to cover them.

In some cases you will not need additional employers’ liability insurance for volunteers or for:

  • students who work for you unpaid;
  • people who are not employed, but taking part in a youth or adult training programme; or
  • a school student on a work experience programme.

Insurers will usually cover the above under an existing employers’ liability policy, and there is generally no need to inform your insurer if you take on any of the above. However, you should talk to your insurer if you take on the above either for long periods, or if they are doing work that is not your company’s usual business, and you should bear in mind the level of risk they may be exposed to during the time they are working for you. If you do not currently have any employers’ liability cover you should talk to your insurer before taking on any of the above.

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