Back to Insights Back to Insights

If you are a small business owner looking to take on your first employee, congratulations! This is a significant step in growing your business and demonstrates that you have successfully run your startup.

Before hiring an employee, you will need to understand the associated laws and regulations, such as workplace health and safety, registering as an employer, and the necessary business insurance policies.  

This article answers some important questions related to Employers’ Liability Insurance, a policy you are legally required to have as soon as you become an employer.

Why do I need Employers’ Liability Insurance?

Employer’s liability insurance is used to pay compensation to an employee who successfully brings a personal injury claim following a work-related injury. These can include accidents at work or becoming unwell due to an industrial disease. 

The policy you take out must come from an authorised insurer and amount to a minimum of £5 million.

Do I need Employers’ Liability Insurance for a limited company?

Yes, if the company has more than one director and/or one or more employees. This applies even if your staff are close family members. However, sole traders who employ only an immediate family member, such as a spouse or sibling, do not need Employers’ Liability Insurance.

Do I need Employers’ Liability Insurance for contractors and freelancers?

If the Health and Safety Executive deem that a person doing work for you is an employee, you must have Employers’ Liability Insurance. 

The line between an independent contractor and an employee is very thin. If you are in doubt and need professional advice, you can book a free 15 minute consultation with one of our lawyers.

Book a free 15 minute consultation


What is the penalty for not having Employers’ Liability Insurance?

Failure to have Employer’s Liability Insurance can result in a fine of £2,500 every day you do not carry the proper insurance. For more information about the full terms that define this, visit the .gov website.

Do I need Employers’ Liability Insurance for a limited company?

If a business is incorporated as a private limited company, it must be covered by Employers’ Liability Insurance. 

As you know, family businesses are exempt from this requirement. However, it is recommended to have liability insurance when the company is set up as a limited company.

Do I need Employers’ Liability Insurance as a director?

You will be exempt if you are the director of the limited company, work as the only employee and also own 50% or more of the company.

What does the Employers’ Liability Insurance cover?

Accidents can still happen regardless of how strict you are about your health and safety compliance. Employers’ Liability Insurance will protect you if your employee suffers a workplace injury and you are found liable for negligence in a personal injury claim. 

Employers’ Liability Insurance can cover compensation payments and legal costs if an employee sues their employer or ex-employer for a work-related illness or injury. 

The compensation amount may consider things like medical costs and lost income.

Employers’ Liability Insurance is designed to cover the costs if an employee claims compensation for illness or injury that they believe has been caused by their work.

Get legal assistance from LawBite

If you are unsure whether your business needs Employers’ Liability Insurance, it is best to seek legal advice. LawBite has experience helping startups and small businesses achieve their commercial ambitions and regulatory compliance. 

To find out how we can support you concerning business insurance matters and regulatory compliance, book a free 15 minute consultation or call us on 020 3808 8314.

Additional resources

In closing

Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.