Employer's liability insurance

Starting a small business in the UK is a journey filled with hopes and dreams as much as risks and unexpected challenges – including navigating UK employment laws. Even hotshot founders and CEOs have to queue up, especially when they’re first setting up their business.

One of the essential legal hurdles to jump over is employer’s liability insurance.

Employer’s liability insurance is a legal requirement for UK businesses and provides a safety net for both you and your employees. Many small business founders have to deal with administrative tasks like employer’s liability insurance themselves when they don’t have a dedicated HR manager to delegate it to. I’ve actually had the opportunity to help small businesses get off the ground and make sure they stayed compliant with UK HR legal requirements like employer’s liability insurance.

In this post, I’d like to offer some guidance on what employer’s liability insurance is and why it’s important for your business, and how to choose the right one for you.

What is employers' liability insurance?

Put in simple terms, an employer’s liability insurance is an insurance policy that covers the compensation for claims and legal fees if an employee becomes ill or injured due to work-related activity.

You can think of it as a financial buffer or safety net that ensures that you are in line with your legal and financial responsibilities as an employer.

Here are a few facts about employer’s liability insurance for your small business or startup:

It’s a legal requirement in the UK
If you keep full-time or part-time staff, or even temp workers, you must have a policy with at least £5 million in coverage from an authorised insurer.
Failing to comply with this legal requirement can result in steep financial penalties of £2,500 per day fines. That’s a cost that few small businesses can afford to cover.

This isn’t a matter to take lightly either - the potential consequences of failing to comply could potentially cripple your business.

How to choose the right employers' liability insurance

Choosing an adequate employer’s liability insurance is about finding one that fits your business’s unique needs, not just checking off a legal box.

First, consider the options that align most closely with your industry and what your business does:

Are there any specific risks or liabilities related to your field or vertical? Make sure your policy addresses those challenges so that you have the protection you need.
Work with reputable insurers. Check for online reviews, ask for recommendations from colleagues in your network, and read through the terms and conditions.

What is the difference between employer’s liability insurance and public liability insurance?

You may be wondering how an employer’s liability insurance differs from public liability insurance. While the former covers your employees, public liability insurance covers injuries to the public or their property.

Selecting the best employer’s liability insurance is not just about legal HR compliance - it’s about giving you peace of mind as a small business owner who already has enough on their plate.

Employer’s liability insurance cost and options

The cost of an employer's liability insurance is determined by several factors including:

The number of employees
The risks associated with your chosen field
The status of any previous claims

In the UK, the cost of an employer’s liability insurance ranges between £60 to £600 per employee, per year.

That cost increases with the likelihood that the employee will be injured while on the job. Office workers, for instance, will be the lower range while construction workers will cost more.

If cost is an issue and you need an affordable alternative to traditional legal counsel, you can count on CharlieHR to help. With our HR advice service, we can help you navigate insurance hurdles so you not only meet your legal responsibilities but stay on top of your business goals.

Liability insurance compliance and responsibilities

Employers in the UK must be insured for at least £5 million, as per the Employers' Liability Act of 1969.

You should also display the certificate where your employees can see it, and make sure that all employees (including part-timers and temps) are covered. Failure to comply can have you racking up fines of up to £2,500 per day.

Exemptions and special cases

Employer’s liability insurance is a legal requirement for most businesses in the UK. However, there are a few special exceptions for to be aware of.

For one thing, sole traders with no employees who work for themselves may be exempt from employee liability insurance requirement. The same goes for family businesses.

Then, if you run a limited liability company, the rules get a tad trickier: you must cover all employees., including directors if they’re working under employment contracts.

Shareholder employees have their special considerations that revolve around their dual role in the company. If a shareholder is also an employee, they must be covered by your employer's liability insurance policy.

Here are a few steps you can take to see if you fit under one of these qualified exemptions:

1. Understand your business structure: Determine if you fall under one of the qualified categories for exemptions, such as if you’re a sole trader

2. Consult an expert: Seek legal consultation if you’re unsure about your exemption status

3. Document Everything: Keep a detailed record of your business structure, employee relationships, and legal consultations. This will cover your back if questions arise later.

Safeguard your business with the right employer’s liability insurance

You’ve already overcome your share of obstacles as a small business owner just to get to where you are now. Employer’s liability insurance is but one of them.

Understanding your legal obligations, selecting the right coverage for your needs, and ensuring the safety of your employees are not just about compliance - they’re an opportunity for growth and building the foundations of a great workplace.Cost-effective solutions like CharlieHR can help you understand the intricacies of your insurance situation and help you find the best option for you. Schedule a chat with me or another advisor to find out more.

Want to find out more about HR compliance? Have a look at our guides: