The moment you take on staff, your responsibilities as an employer grow, and one of the most important is making sure you have the right insurance in place. Employers' liability insurance is rarely optional, and getting it wrong can be costly. Yet many small business owners are unsure exactly what it covers or when they need it.
This guide explains what employers' liability insurance is, when the law expects you to hold it, and how the practical side works.
This article is general information only and is not legal advice. Employment rules can change, so always confirm the details that apply to you on GOV.UK or speak to a qualified employment adviser.
What employers' liability insurance is
Employers' liability insurance is cover that protects your business if an employee becomes ill or is injured because of the work they do for you, and they make a claim for compensation. If a member of your team suffers harm and holds you responsible, this insurance helps cover the legal costs and any compensation that may be due.
The reasoning behind it is simple. People who work for you should be able to seek redress if they are hurt as a result of their job, and you should not be left financially exposed by a single claim. The insurance bridges that gap, protecting both your employee's right to compensation and your business's survival.
The legal requirement
For most employers, holding employers' liability insurance is a legal requirement, not a nice-to-have. As a general rule, once you employ staff you are expected to have this cover in place, and there can be serious penalties for failing to hold it. Because the precise scope and any penalties can change, confirm the current position on GOV.UK.
It is worth understanding that this is one of the few business insurances that is legally mandated rather than simply sensible. Most other cover, such as public liability or contents insurance, is your choice. Employers' liability sits in a different category because it exists to protect your workers, so the law takes it seriously.
The minimum cover
The law generally sets a minimum level of cover that your policy must provide, expressed as a sum the policy will pay out. Many insurers offer more than the minimum as standard, which can be reassuring given how high some claims can run.
Because the required minimum is exactly the kind of figure that can be reviewed and changed, do not assume a number you have seen quoted somewhere still applies. Check the current minimum on GOV.UK and make sure your policy meets or exceeds it. When you take out cover, read the policy to confirm the insured amount and that the insurer is authorised.
Who may be exempt
Not every business with people working in it is required to hold employers' liability insurance. There are some recognised exceptions, though they are narrower than people often assume. Situations that may fall outside the requirement can include:
- Businesses with no employees, where the only person working is the owner.
- Certain family-only arrangements, depending on the circumstances.
- Some specific types of organisation that are treated differently.
The trouble is that the line between an employee, a worker and a contractor is not always obvious, and getting it wrong can leave you uninsured when you thought you were exempt. If you are in any doubt about whether someone counts as an employee for this purpose, check the current guidance on GOV.UK or take advice rather than assume. Our overview of workplace rules for small businesses can help you get the wider picture straight.
Displaying and keeping the certificate
When you take out a policy, your insurer gives you a certificate confirming the cover. There are expectations around making this certificate available to your employees and keeping records of your insurance, since past claims can sometimes arise long after the work was done.
Good practice generally involves:
- Keeping your certificate somewhere your employees can see or access it.
- Storing copies of past certificates rather than discarding old ones.
- Keeping a record of your insurer and policy details over time.
- Making sure cover renews without gaps when a policy ends.
The reason for keeping old certificates is that some work-related illnesses take years to appear, and a former employee might bring a claim relating to a period long past. Having a clear history of who insured you and when can be invaluable if that happens.
What affects the cost and how claims work
The price of cover varies from business to business. Insurers look at the nature of your work and the risks involved, since a desk-based team and a team using heavy machinery present very different levels of risk. Other factors typically include the number of people you employ, your wage bill, your claims history and the safety measures you have in place.
This is where good health and safety pays off twice over: it protects your people and it can help keep your premiums reasonable. Our guide to health and safety basics for small businesses sets out the sensible steps that reduce the chance of an injury in the first place.
If a claim does arise, the broad shape is usually this. The employee notifies you, you inform your insurer promptly, and the insurer handles the investigation and any compensation, working within the terms of your policy. Reporting quickly and keeping clear records of incidents makes the process far smoother. Recording how and where your people work, including in their written terms, also helps; our guide on what to include in an employment contract covers that side.
Employers' liability insurance is the one cover most employers cannot skip: it protects your people if the worst happens, and it protects your business from a single claim that could otherwise sink it.
Frequently asked questions
Do I need employers' liability insurance for part-time staff?
Generally, the requirement is not about how many hours someone works. If a person counts as your employee, the cover is usually expected regardless of whether they are full-time, part-time or temporary. If you are unsure how someone is classified, check the current guidance on GOV.UK.
What happens if I do not have cover when I should?
Failing to hold required employers' liability insurance can lead to penalties, and you would also be personally exposed to the full cost of any claim. Given how high a serious injury or illness claim can run, going without is a risk few small businesses could absorb. It is far cheaper to stay covered.
Does this insurance cover contractors and the self-employed?
It depends on the working relationship rather than the job title. Someone described as a contractor may still count as a worker for insurance purposes, depending on how they work for you. Because the distinction can be subtle, it is worth confirming on GOV.UK or taking advice before deciding they fall outside your cover.
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