As liability specialists we are often asked to explain when Employers Liability Cover is required under the Employers Liability (Compulsory Insurance) Act 1969 (‘the Act’). It is the nuances of the rules which clients can misunderstand. Here we provide some clarity around those grey areas to assist you in your discussions with your clients.
Employers Liability Insurance covers a company for liability for damages in respect of bodily injury, death or disease caused to employees arising out of and in the course of their employment by the insured. All Employers Liability policies are required by law to carry a minimum limit of indemnity of £5m for any one claim. It is industry standard for cover to be issued with a £10m limit – work carried out offshore &/or with asbestos is an exception to this and is normally limited to £5m. Your client is responsible for the health and safety of their employees while they are at work. The Health and Safety Executive is the enforcement authority for Employers Liability insurance compliance. Your client’s business may be fined up to £2,500 for any day they trade without suitable insurance.
What is the definition of an employee?
Whether or not your client needs Employers Liability insurance depends on the terms of their employment contract. This can be spoken, written or implied. It is the nature of the relationship with the people who work for them and the degree of control that they have over the work that they do which defines how they should be treated for insurance purposes.
One area which is commonly misunderstood by clients is around insuring sub-contractors. Your client will employ sub-contractors on one of two bases:
Labour only Sub-Contractors (LOSC) – LOSCs work under your clients’ supervision and direction. Your client will supply materials and tools. The LOSC is paid wages by the main contractor and is classed as an employee for whom your client should buy Employers Liability insurance
Bona Fide Sub-Contractors (BFSC) – BFSC work under their own supervision and direction. They will provide their own materials and tools. They are generally employed to carry out a specialist/particular type of work within a job (i.e. scaffolding/plumbing etc). The BFSC should have their own liability insurance in place and it is important that your client always checks this for their own protection. If the BFSC’s insurance fails, your client is required to provide contingent cover. If there is an accident and a BFSC is injured and their own employers liability cover fails, your client could be responsible for a claim under their public liability section. Your client does not need to buy Employer’s Liability insurance for BFSC.
So does my client really need the cover?
Your client must have Employers Liability insurance if they have employees unless they are exempt. The following employers are exempt:
- Most public organisations including government departments and agencies, local authorities, policy authorities and nationalised industries;
- Health service bodies, including National Health Service trusts, health authorities, primary care trusts and Scottish health boards;
- Some other organisations which are financed through public funds, such as passenger transport executives and magistrates’ courts committees.
Your client is obliged to insure Employers Liability where:
- They deduct NI and income tax from the money they pay employees;
- They have the right to control where and when their employees work and how they do it;
- They supply their employees work materials and equipment;
- They have a right to the profit their workers make;
- They require that person only to deliver the service and they cannot employ a substitute if they are unable to do the work;
- Their employees are treated in the same way as other employees, for example, they do the same work under the same conditions as someone else they employ;
- Their employees work for them on an unpaid basis whether they are students, volunteers, interns or other helpers;
- Their employees are students, on a work experience programme, or taking part in a training programme
Your client may not need employers’ liability insurance where:
- Their employees do not work exclusively for them (for example, if they operate as an independent contractor);
- Their employees supply most of the equipment and materials they need to do the job;
- Their employees are clearly in business for their own personal benefit;
- Their employees can employ a substitute when they are unable to do the work themselves;
- Their employees are all close family members (this exemption only applies if the company is not incorporated as Ltd company)
- They do not deduct income tax or national insurance. However, even if someone is self-employed for tax purposes they may be classed as an employee for other reasons and your client may still need employers’ liability insurance to cover them
- The company employs only their owner where that employee also owns 50% or more of the issued share capital in the company
If you have any questions, please contact me on 01638 675992 or firstname.lastname@example.org or speak to one of our team here at Yutree.