Employers' Liability Insurance

What is Employers' Liability Insurance?

Employers' liability insurance (ELI) also known as Employers' liability compulsory insurance (ELCI) is a legal requirement for every company that employs one member of staff or more. By law, an employer must have this type of cover for at least £5 million and must cover all of their employees within the UK.

If you are the director of a Private Limited Company and the company takes income tax and National Insurance contributions from you, you are still considered an employee of the company.

As an employer, you are responsible for the health and safety of all your employees while they are working for you and even when they leave the company. If any employees are injured at work, or they or any previous employees become ill as a result of the employers' negligence they may claim against the company in order to seek compensation. Employers' liability insurance covers the company if this situation arises, it also usually covers legal fees and any other claims made by employees up to the amount specified in the agreement. If a company is very low risk £5 - 10 million can be adequate however high risk companies may decide to take out a higher level of cover.

How much cover should employers take out?

The minimum requirement for any employer is £5 million. The employer and broker should assess the risks and liabilities of the company to decide whether a higher level of insurance cover will be needed. Most insurance brokers offer at least £10 million as their basic level of cover.

Who does the law apply to?

You are required by law under the Employers' Liability Insurance Act 1969 to cover yourself against employee claims for at least £5 million if your company does not fall under one of the following statements:

• You are a family orientated business and not a limited company. Family members must be closely related such as your husband, wife, children, parents, grandparents etc.
• You are the owner of the company and the only employee who owns at least 50% of the company.
• The business is a government department, local authority, police, health service, primary care trust or another similar public organisation.

What makes someone an employee?

If the following statements apply then generally the person is classed as your employee:

• You are in charge of how many hours they work and the job they do.
• You are responsible for taking income tax, National Insurance and paying their salary.
• If they are ill or unable to work they cannot employ someone to cover their work.
• You supply the majority of the materials in order for them to work.

The director of a Private Limited Company is still considered an employee if the company deducts income tax and NI contributions and they own less that 50% of the business.

What is the difference between Employers' Liability Insurance and Public Liability Insurance?

Employers' Liability Insurance covers only claims made against the company by employees. Public Liability Insurance covers the business against claims made by members of the public and third parties.

Working Abroad

If any of your employees work in England, Scotland, Wales or an offshore platform you will need to obtain Employers' Liability Insurance. Employees based or working out of the UK will not be covered by Employers' Liability Insurance under English law. If any of your employees are based abroad you will not need ELI for them unless they have spent a minimum of two consecutive weeks in the UK or a minimum of seven days on an offshore platform. If employees are working out of the UK you should find out the employment laws for that country.

Displaying your certificate

When you take out Employers' Liability Insurance you will receive a certificate from the insurance provider. You must display a copy of the certificate so employees can read it easily; ideally this would be where the company is based such as the main office. Copies of this document must be kept for at least forty years or you could be fined up to £1000.

Who is in charge of the law?

The Health and Safety Executive (HSE) is responsible for the laws on Employers' Liability Insurance. Your certificate of ELI must be readily available if the HSE ask to see it. You can be fined up to £1000 if you refuse to show your certificate when asked.

Consequences of no insurance

If Employers' Liability Insurance is a legal requirement for your company but you choose not to take out any cover you could be fined up to £2500 for every day the insurance is not in place. The HSE could even close down your company.

For further information about Employers' Liability Insurance visit the HSE guide.

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