smallbusiness.co.uk: Helping your business think big

For most entrepreneurs, considering cover for employers’ liability compulsory insurance (ELCI) will be as attractive a proposition as authorising payment to an auditor. However, if you fail to comply with the law, you risk a fine of £2,500 per day.

Similarly, if you haven’t ticked all the ELCI boxes, claims from employees for accidents or sickness can be ruinous. An ex-employee can instigate a case against you if a link can be established between poor health and the workplace (think repetitive strain injury or asbestosis).

‘Some of these claims could extend into millions of pounds. If someone ends up with a permanent disability, you could be liable for medical costs and loss of earnings, and the costs could be enough to ruin a business if it’s not adequately covered,’ says David Quick of insurer CETA.

If you’re a family business not incorporated as a limited company or if you are the owner and sole employee with 50 per cent or more of the share capital, then you’re exempt from ELCI. For everyone else, you must have at least £5 million of ELCI cover, although insurers increasingly offer a standard £10 million.

Chris Slater, head of insurance at Simply Business, explains: ‘You’re covering yourself for incidents that might not be foreseeable, and you might not see the benefit of the cover for years down the line.’

An area that employers should be aware of is part-time staff and contractors as the law doesn’t clearly define what constitutes a member of staff. In general, the Health and Safety Executive says that if you deduct national insurance and income tax from the money you pay an employee, you will need cover. ELCI is also likely to apply if you control where and when they work and supply most of the materials or equipment they are using.

Charging a premium
As for the cost of premiums, businesses that are considered higher risk, like roofing contractors, scaffolders or even haulage companies, will pay more than an office-based firm. Says Slater: ‘Costs can be managed down by the employer by having a strong health and safety policy. Regular health and safety briefs with a designated person in charge, combined with a clear claims history, will all be looked upon favourably by your insurer.’

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