There are two main reasons why you should take out employer’s liability insurance: firstly, to avoid your business being wiped out by a substantial claim for compensation by an employee being injured or killed at work.

Secondly, you’re almost certainly obliged by law to take out a policy. Businesses without at least £5m of cover face a daily penalty of up to £2,500. If your business isn’t a limited company and it only employs close family members, you may be exempt, but it’s still a good idea to protect yourself, because even family members seek compensation for injuries.

There are lots of negative stereotypes about personal injury claims, so you may be thinking that none of your employees fit the image of the money-grasping claimant so popular in the press. Think again: even if you only employ close family members in a low-risk industry, you still need insurance.

No business is risk-free and if someone is seriously injured then the claim for compensation, care and medical treatment can run into millions of pounds. In addition, you could be facing substantial legal costs for both the claim and your defence.

It’s clear that you need employer’s liability insurance to cover your liability towards people who work for you, but how do you define this category? Let’s look more closely at who is covered by this type of insurance.

Employees
This is the most obvious group of people. Unsurprisingly, employer’s liability insurance provides cover for those employed by your business.

Subcontractors
If you hire subcontractors who will work under your direction using your tools and equipment, they probably need to be covered by an employer’s liability insurance policy. If you hire a subcontractor who comes and goes as they wish and uses their own tools, you won’t usually require employer’s liability cover for them, but they may be covered by your public liability policy.

Contractors
If a contractor works solely for you, it’s likely that you need to take out employer’s liability insurance to cover them. If they work for lots of different companies, it’s less likely that you’ll need insurance. Seek specialist advice if necessary, as this can be a complex area.

Self-employment
If you are self-employeed

If you don’t have any employees and work by yourself, you won’t need employer’s liability insurance. If you hire people to help, even on a temporary or seasonal basis, you’ll need to take out insurance.

Unpaid staff
If you let volunteers or interns work with you, it’s likely that they’d be covered by an existing employer’s liability policy. If you don’t have a policy but take in unpaid staff, they’re likely to be covered by your public liability policy – check to make sure.

Limited companies
Usually a limited company is required by law to take out an employer’s liability policy. However, if you contract through a limited company of which you are the director, own at least 50% of shares and have no employees other than yourself, you aren’t legally obliged to take out insurance.

Small workforce
Even if you only employ one person, you’ll still need to take out a policy. If you’re uncertain whether someone who works with you is an employee or a subcontractor, it’s best to take some legal advice, as lack of clarity could lead to a host of problems in addition to your insurance liability.

Purchasing employer’s liability insurance
Many insurance companies offer employer’s liability insurance within a package containing other types of policy, such as professional indemnity and intellectual property cover. While the minimum cover required by law is £5m, most insurers start with a standard liability of £10m, which rises depending on the circumstances of the business in question.

As with most insurance policies, the policyholder is usually required by the insurance provider to take reasonable steps to avoid injury to employees. You’ll be expected to comply with health and safety laws that apply to your industry. Having an insurance policy doesn’t reduce your duty of care to your employees!