Of all the business insurances, employers' liability is the one most likely to be a legal requirement, and going without it can mean serious fines. This guide explains employers' liability insurance in plain English: what it covers, who must have it, how much cover the law requires, and the penalties for not having it.
What employers' liability insurance is
Employers' liability insurance covers compensation and legal costs if an employee becomes ill or is injured because of their work and makes a claim against your business. If a member of your staff suffers a work-related injury or illness and you are found responsible, the policy pays the damages and defence costs. It protects your business from what can be very large claims, and it protects your employees by ensuring funds are available to compensate them.
The legal requirement
Under the Employers' Liability (Compulsory Insurance) Act 1969, most businesses that employ staff in the UK must hold employers' liability insurance. You generally need it as soon as you become an employer. This is a legal duty, not a choice, and it is one of the few insurances the law actually requires. If you employ people, the starting assumption should be that you must have this cover in place from day one.
How much cover the law requires
The law requires a minimum of £5 million of employers' liability cover, for any single claim or claims arising from one cause, from an authorised insurer. In practice, most policies provide £10 million as standard, because the difference in price is small and serious claims can be very costly. So while £5 million is the legal floor, £10 million is the usual level, and higher-risk businesses may want more.
The cover must be from an authorised insurer
Your employers' liability policy must be with an insurer authorised by the UK regulators, the Financial Conduct Authority or the Prudential Regulation Authority. You can check an insurer on the Financial Services Register. Cover from an unauthorised insurer does not meet the legal requirement, so this is worth verifying. Using a properly authorised insurer is part of complying with the law, not just a matter of the policy being any good.
Who is exempt
Some businesses are exempt. A business with no employees, such as a sole trader working alone, generally does not need it, and certain family businesses employing only close family members may be exempt, though this exemption does not apply to limited companies. The rules can be subtle, and casual workers, temporary staff, apprentices and volunteers can all create a requirement. If there is any doubt, it is safer to take out cover than to risk being wrong.
The penalties for not having it
The penalties for trading without required employers' liability cover are severe. You can be fined up to £2,500 for every day you are uninsured, which mounts up alarmingly. There is also a separate requirement to display your employers' liability certificate where staff can see it, with a fine of up to £1,000 for failing to do so. Beyond the fines, you would be personally exposed to the full cost of any employee claim.
Displaying and keeping your certificate
You must make your employers' liability certificate available to employees, which can be done electronically. You should also keep records of your cover, because claims for occupational illness can arise many years after the exposure, and the insurer on risk at the time responds. For this reason it is wise to retain certificates for a long period, often cited as up to 40 years, so historical cover can be traced if a late claim arises.
How it fits with other business cover
Employers' liability covers your own staff, which is distinct from public liability, covering injury to the public, and professional indemnity, covering claims about your work, as our guides to public liability insurance and professional indemnity insurance explain. Many insurers offer these together in a business package. The key point is that employers' liability is the one most likely to be legally compulsory if you have employees.
Who counts as an employee
The duty to hold employers' liability cover turns on whether someone is an employee for these purposes, and the test is based on how the person works, not simply what their contract says. Someone you direct, who works set hours under your control, may be an employee even if labelled otherwise. Because getting this wrong carries heavy penalties, the safe course where there is any doubt is to treat the person as an employee and ensure cover is in place.
Volunteers, apprentices and temporary staff
The requirement can extend beyond permanent staff. Casual workers, temporary staff, apprentices and even volunteers can all create a need for employers' liability cover, because they too could be injured through their work for you. It is a common mistake to assume that only full-time, permanent employees count. If people work for your business in any of these capacities, check whether you need cover for them, rather than assuming their status puts them outside the requirement.
Why claims can arise years later
Some work-related illnesses, such as those caused by exposure to harmful substances, can take many years to appear. An employee, or former employee, may bring a claim long after the exposure, and the policy that responds is the one that was in force at the time of the exposure. This is why retaining records of your cover over a long period matters, so that historical insurance can be traced if a late claim is made.
Reducing the risk of claims
While insurance covers the cost of claims, good health and safety practice reduces the chance of them arising. Assessing risks, providing training and equipment, and maintaining a safe workplace protect your staff and lower the likelihood of injury or illness. Fewer claims can also help keep your premiums down over time. Insurance and prevention work together: the cover is your backstop, but a safe workplace is the first and best line of defence.
The bottom line is simple: if you employ anyone in almost any capacity, assume you need employers' liability cover of at least the legal minimum from an authorised insurer, display the certificate, and keep your records, because the penalties for getting it wrong are among the steepest in business insurance.
In short
Employers' liability insurance covers compensation and legal costs if an employee is injured or made ill by their work. Under the 1969 Act, most employers must hold it, with a legal minimum of £5 million from an authorised insurer, though £10 million is standard. Some sole traders and family-only businesses are exempt, but not limited companies. Trading without it risks fines of up to £2,500 a day, plus £1,000 for not displaying the certificate.
Where to get help and next steps
Read our guides to public liability insurance and professional indemnity insurance to see how business covers fit together. This is general information, not financial or legal advice.