You may have read or heard that employers’ liability insurance is mandated by law and has to be purchased by all businesses. This is actually not the case, and some businesses may be buying it unnecessarily. Employers’ liability insurance can be quite costly depending on your risk profile as a business. Therefore, it’s a good idea to check the requirements very carefully.

In this article, you’ll learn about who is and who isn’t required to buy employers’ liability insurance along with some helpful advice for reducing its price.

What Is It and When Is It Required?

Employers’ liability insurance covers compensation for your employees if they become injured or ill as a result of performing their work duties. Most businesses that have employees are required by law to be insured, but not all. Many factors come into play as to whether you must have this type of insurance or not. Generally, you are required to have it under one or more of the following circumstances:

• You have a right to claim profits generated by your employees.
• You deduct income tax and national insurance contributions from the money paid to employees.
• You control where and when your employees have to work.
• You provide most of the tools, materials, and equipment needed to do their work.
• You employ seasonal or part-time staff.

As you can see, this encompasses a broad range of businesses. But you might be exempt from compulsory insurance if you fall into one of these categories:

• Any companies owned or controlled by the government. This includes port authorities, certain charities, and most public organisations.
• Limited companies employing a single person who owns 50% or more of the company’s share capital.
• Equal-share partnerships that do not employ anyone other than the directors.
• Sole traders
• Your employees are directly related to you or only have employees that do not ordinarily reside in Great Britain.

You can look into your published accounts for indications that you may fall into an exempt category. Phrases such as "aims and objectives set by DCMS”, "required to disclose information in accordance with Government Financial Reporting Manual," and “established under the XYZ Act of 19XX…" are all good indications of a possible exemption.

How Much Coverage Do I Need?
The legally required minimum is £5m cover in total. Most policies, however, will cover a standard £10m per occurrence. It’s important to note the difference between “per occurrence” and “per employee” here.

An occurrence, such as a large industrial accident or an explosion, can cause injuries to multiple employees. The expense of that occurrence can easily exceed many millions of pounds. If you have £5m per employee, and 10 employees are injured, that would protect you to the amount of £50m. But if you have £5m per occurrence, the insurance company would only compensate you the £5m.

Anything over the legally required £5m in total isn’t usually necessary. Injury claims very rarely approach that amount. But you also want to be covered in case of a catastrophe. Therefore, the ideal policy will be one that has what’s called a “split limit.” With a split-limit policy, you can have the £5m per employee and a reasonably higher number (say £10m) per occurrence. This type of policy won’t be offered through regular channels, and you’ll need an actuary to specially design it for your business.

To simplify matters, you can expect to pay anywhere in the range of £50-£100 per employee in an office setting. And, up to £500 or more per employee in high-risk occupations, such as construction workers or deep-sea divers.

Important Considerations
All this information is a lot to think about, so here’s a summarized list of the key points that you should keep in mind about employers’ liability insurance.

• It’s not compulsory for all businesses! Find out if you really need it by looking at your published accounts and don’t pay for coverage your business doesn’t need.
• Don’t let your employers’ liability insurance lapse. This could result in fines of up to £2,500 for every day you are uninsured.
• Make sure you display your employers’ liability certificate in plain sight. Not doing so could also result in a fine.
• Don’t hide or otherwise obfuscate any details about your employees from the insurance company. Doing so could result in an invalidated claim.

Keep Your Employees Safe, but Don’t Overpay
It’s your duty as an employer to take whatever measures are necessary to provide safe working conditions for your employees. However, there’s no way to make any job safe enough that incidents will never happen. In these situations, having the right type and amount of coverage is crucial to avoid a substantial loss to your business. Of course, even if you are compelled to purchase insurance, you can opt to self-insure as much as you can afford.

Author's Bio: 

John is an actuary and owner and Director of HJC Actuarial, which he founded in 2003 and which has advised over 100 clients since it’s’ inception. He has worked in the insurance industry for 30 years, qualifying as an actuary in 1995 and becoming a Partner in a major global consulting firm in 2000. Since 2003 he has provided independent advice to his clients on optimal insurance program design, presentation of risks, and premium negotiation with insurers, insurer solvency assessments, policy wordings, insurer selection, and insurance broker selection.