Employers Liability Insurance

With a small number of exceptions, all businesses have a legal duty to arrange Employers Liability Insurance to financially compensate “employees” in the event of injury or disease whilst at work. However, many small businesses mistakenly believe that they are free from any obligation to ensure Employers Liability Insurance is in place, as they do not know the exact definition of an ’employee’ under the Employers Liability (Compulsory Insurance) Act 1969 and subsequent revisions/amendments.

Why do you need Employers Liability Insurance?
Under the Employers Liability (Compulsory Insurance) Act 1969 an employer is obligated to obtain Employers Liability Insurance to protect its “employees” should they be injured as a result of an accident at work, or become ill as a result of their work. In the event that the employer is found to be responsible in law, compensation may have to be paid. Employers Liability Insurance ensures that the employer has adequate funds to pay this compensation.

Who is classed as an “employee”?
For the purposes of the Employers Liability (Compulsory Insurance) Act 1969, the term “employee” means an individual who has entered into or works under a contract of service or apprenticeship with an employer whether by way of manual labour, clerical work or otherwise, whether such contract is expressed or implied, oral or in writing. This includes “employees” based in the UK but temporarily working overseas.

Insurers make a further definition of “employee” within their policy terms & conditions, an example of which follows;

  • any person under a contract of service or apprenticeship with the Insured;

  • any labourmaster or labour only subcontractor or person supplied by him;

  • any self-employed person providing labour only;

  • any trainee or person undergoing work experience;

  • any voluntary helper;

  • any person who is borrowed by or hired to the Insured whilst working for the Insured in connection with the Business

Is yours a Family Business?
Family businesses are exempt from the requirement to purchase Employers Liability Insurance where you, the employer, are closely related to all of your employees, such as husband, wife, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother or half-sister.
However, this exception does not apply if the family business is incorporated as a limited company.

Is yours a Limited Company?
One of the most common misconceptions is that if an incorporated (or limited) company solely has Directors, and no other “employees”, the company has no requirement to buy Employers Liability Insurance cover. This is not the case.

At law, an incorporated (or limited) company is deemed to be a separate legal entity and as such the company acts as the Employer of the director(s) thus creating a duty on the company to purchase Employers Liability Insurance. The only exception to this is any employer which is a company that has only one employee (director) and that employee (director) also owns all or the absolute majority of the issue share capital in that company. So, if you appoint your spouse or accountant as the Company Secretary, you will still need to ensure that you purchase Employers’ Liability insurance, if you are not the majority shareholder.

Your accountant may suggest to you that becoming an incorporated (or limited) Company will entitle you to certain financial advantages – however, you may then have to consider the increased business costs incurred from having to purchase Employers’ Liability insurance. Before you decide to proceed with becoming Limited, contact us to discuss the insurance implications.


(Please Note: This article is not intended to be a legal interpretation of the Employers’ Liability (Compulsory Insurance) Act 1969, and you should be aware that only the courts can authoritatively interpret the law. If in doubt as to whether or not a person is an “employee” in law, please seek a professional legal opinion)

For more information please refer to the HSE’s Employers Liability (Compulsory Insurance) Act 1969 – A Guide For Employers and contact us, at Hall Commercial Insurance Brokers, to discuss your requirements.