Employers’ liability insurance: When does an employee become an employee?

August 7, 2023

When you employ someone to work for you, you also take on responsibility for keeping them safe from harm in any of the duties they perform. That might be by way of an accident at work, or some longer-term medical condition brought on – even after many years after their employment has ended – by the work they’ve done.

Employers’ Liability Insurance

If that employee does suffer an accident or contract an illness, they may hold you liable as their employer, and claim a right to financial compensation for their injuries or the damage to their health. Indeed, the law takes such a serious view of the employee’s right to compensation that the employer’s obligations are set out in Employers’ Liability Insurance (ELI) legislation.

The Employers’ Liability (Compulsory Insurance) Act requires employers to arrange a minimum of £5 million in insurance cover to meet the compensation claims of any employee suffering an accident at work or contracting a medical illness or condition.

Who is an employee?

For any employer, of course, that immediately begs the question of just who is counted as an employee.

In fact, the term is very broadly defined. If you are an employer – even if your employees are hired on a casual or part-time basis – it is almost certain that you will be legally required to have Employers’ Liability Insurance.

If the people working for you are unpaid volunteers, the law is somewhat less onerous, but you will still owe each of those individuals a duty of care – in breach of which you may be liable for the payment of considerable damages. Employers’ Liability Insurance, therefore, is also a prudent way of indemnifying yourself against claims from volunteers.

Exceptions

Exceptions to the legal requirement for an employee to be protected by Employers’ Liability Insurance are few and far between. They are limited to the following:

• immediate family members – provided it is a family business only and not a limited company – where close family members include spouses, parents, grandparents, step-parents, and step-children;

• the employee is based – and, therefore, also works for you – abroad. But if they spend 14 or more consecutive days in the UK, then Employers’ Liability Insurance is required and you will need to check, of course, whether local legislation in the country where they are living requires some form of employers’ liability insurance;

• some local and public authorities are exempt from the need for such insurance cover; and

• if you are a sole trader who decided to incorporate your business of which you become its sole employee and director, and provided you own at least 50% of the issued share capital, the company remains exempt from the need for Employers’ Liability Insurance.

Penalties

If you employ anyone and have not arranged the necessary Employers’ Liability Insurance, you are committing a criminal offence and you may be fined up to £2,500 every day that the cover is not properly in place.

You may also face fines of up to £1,000 if you fail to display the relevant certificate of employers’ liability insurance or fail to show it to inspectors from the Health and Safety Executive (HSE) who may ask to see it.