Employers’ Liability Insurance explained

The question of a business having Employers' Liability Insurance (ELI), has been simplified somewhat due to changes to the Employers' Liability (Compulsory Insurance) Act, but they are only applicable to sole traders, explains Judith Rutherford, chief executive of Businesslink for London.

Employers who have more than one employee must provide liability insurance cover – but with some notable exceptions. As a general rule of thumb, you will need ELI for someone who works for you, if:

  • You deduct national insurance and income tax from the money you pay them
  • You have the right to control where and when they work and how they do it
  • You supply most of the materials and equipment
  • You have a right to any profit your staff make and you will be responsible for any losses
  • You require that person only to deliver the service and they cannot employ a substitute if they are unable to deliver it
  • They are treated in the same way and work under the same conditions as your other staff

However, you will probably not need Employers’ Liability Insurance for someone who works for you, if:

  • They do not work exclusively for you, e.g. in the case of an independent self-employed contractor
  • They supply most of the materials and equipment they need to do the job
  • They are in business for personal benefit
  • They can employ a substitute if they are unable to do the job themselves
  • You do not deduct national insurance or income tax (but remember they may still be classed as an employee based on other indicators)

However from a pragmatic perspective it may prove worthwhile to buy ELI against some future unknown situation that may arise. I would suggest taking legal advice if you are in any doubt over whether you require ELI or not. If in the case that you do need to have it, it is very important to use an authorised insurer when you take out ELI, such as those companies working under the terms of the Financial Services and Markets Act 2000. By using an unauthorised insurer you may be breaking the law. The Financial Conduct Authority keeps a register of authorised insurers, which is available on its website www.fca.org.uk/firms/financial-services-register.

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