Understanding Employer's Liability Insurance Requirements

If you employ anyone in the UK — even just one person — you are almost certainly required by law to have employer's liability (EL) insurance. It is one of the few types of business insurance that is legally mandatory, and the penalties for not having it are severe.

Despite this, many small business owners are unaware of the requirement, or they confuse it with public liability insurance (which is a different thing entirely). This guide explains what employer's liability insurance is, who needs it, what it covers, and how to make sure you are compliant.

What is employer's liability insurance?

Employer's liability insurance covers you against claims from employees who are injured or become ill as a result of their work for you. If an employee sues you for compensation, your EL insurance pays for the legal costs and any damages awarded.

Workplace injuries and illnesses are more common than many business owners realise. They do not just happen on construction sites or in factories. An office worker could develop a repetitive strain injury, a warehouse operative could slip on a wet floor, or a remote worker could suffer stress-related illness linked to their working conditions.

Without EL insurance, you would have to pay these costs out of your own pocket — and compensation awards for serious injuries can run into hundreds of thousands of pounds.

The legal requirement

Under the Employers' Liability (Compulsory Insurance) Act 1969, most employers must have EL insurance with a minimum cover level of £5 million. In practice, nearly all policies offer £10 million of cover as standard.

You must have EL insurance from the moment you take on your first employee. This includes part-time workers, temporary staff, apprentices, and volunteers in some cases.

The policy must be provided by an authorised insurer — you cannot self-insure unless you are a company exempted by the regulations.

Who counts as an employee for EL purposes?

The definition of "employee" for EL insurance purposes is broader than you might expect. It covers:

Full-time and part-time employees
Temporary and fixed-term workers
Apprentices and trainees
Labour-only subcontractors working under your direction
Volunteers in some circumstances (especially if they receive any form of payment or benefit)

The key test is whether the person works under your control and direction. If you tell them what to do, when to do it, and how to do it, they are likely to be treated as an employee for EL purposes, even if their contract says otherwise.

Genuine self-employed contractors who control their own methods and use their own equipment are generally not covered — but the boundary is often blurred, and getting it wrong can be costly.

Who is exempt?

A small number of employers are exempt from the requirement:

Sole traders with no employees (you cannot be your own employee)
Family businesses where all employees are closely related to the owner (parent, spouse, child, sibling) — but only if the business is not a limited company
Some public bodies including government departments and NHS bodies
Companies with only one employee who owns 50% or more of the shares — this exemption applies only to incorporated businesses

If none of these exemptions apply to you and you have at least one employee, you need EL insurance. There is no exemption based on business size, industry, or perceived risk level.

What does EL insurance cover?

EL insurance typically covers:

Compensation awarded to an employee for workplace injury or illness
Legal defence costs, including solicitor fees, court costs, and expert witness fees
Out-of-court settlements agreed between the parties
Claimant's legal costs if you lose the case

It does not usually cover:

Fines or penalties imposed by regulators (such as the HSE)
Deliberate acts by the employer
Contractual liabilities outside the scope of the policy
Injuries to non-employees (that is what public liability insurance covers)

The policy responds to claims made during the policy period, regardless of when the injury or illness occurred. This is important for diseases with long latency periods, such as asbestosis or industrial deafness, where the claim may come decades after the exposure.

EL insurance vs public liability insurance

These two types of insurance are often confused, but they cover different risks:

| | Employer's liability | Public liability | |---|---|---| | Who it covers | Claims by your employees | Claims by members of the public, customers, or visitors | | Legal requirement | Yes (with limited exemptions) | No (but often contractually required) | | Typical cover | £5m to £10m | £1m to £10m | | Example claim | Employee slips on wet floor in your office | Customer slips on wet floor in your shop |

Many businesses need both, but they are separate policies with separate premiums. Do not assume that your public liability policy covers employee claims — it almost certainly does not.

How much does EL insurance cost?

Premiums vary widely depending on your industry, the number of employees, your claims history, and the nature of the work involved. A small office-based business with five employees might pay £100 to £300 per year. A construction company with the same number of workers could pay several thousand pounds.

Factors that affect the premium:

Industry risk profile. Construction, manufacturing, and agriculture attract higher premiums than office-based sectors.
Number of employees. More employees means more exposure.
Claims history. Previous claims increase your premium.
Turnover and payroll size. Some insurers use these as proxies for business size.
Health and safety record. Demonstrating good practices can reduce your premium.

Shopping around and using a specialist broker can help you find competitive rates without sacrificing cover quality.

Displaying your certificate

You must display your EL insurance certificate where employees can easily read it. This can be a physical copy in the workplace or an electronic copy accessible through your company intranet or HR system.

If you have multiple workplaces, each one should have access to the certificate. Digital display is now widely accepted, but make sure it is genuinely accessible — not buried in a folder that nobody knows about.

You must also keep copies of old certificates for at least 40 years, because claims for occupational diseases can be brought long after the exposure occurred. Store them securely, ideally in both physical and digital formats.

Penalties for non-compliance

The penalties for not having EL insurance are significant:

A fine of up to £2,500 for every day you are without cover. This is not a one-off penalty — it accrues daily.
A fine of up to £1,000 for not displaying the certificate (or making it accessible to employees).
Personal liability for any compensation claims that arise during the uninsured period.

The Health and Safety Executive (HSE) enforces these requirements and can inspect your EL documentation during routine visits or investigations.

Managing the risk

Having EL insurance is a legal backstop, not a substitute for good health and safety practices. The best way to manage the risk is to prevent injuries and illnesses from happening in the first place.

This means:

Conducting regular risk assessments
Providing appropriate training and protective equipment
Maintaining a safe working environment
Recording and investigating incidents promptly
Encouraging employees to report hazards without fear of reprisal

Good health and safety practices also reduce your insurance premiums over time, creating a virtuous cycle.

Integrating insurance with HR management

Keeping your EL insurance current, displaying the certificate, and maintaining records for 40 years requires organisation. Integrating these tasks with your broader HR and payroll management processes ensures nothing falls through the cracks.

When you take on new employees, your insurer may need to be notified — especially if the new hire changes the nature of the work you do or significantly increases your headcount. Similarly, changes to your business activities, premises, or working arrangements should be reported to your insurer to ensure your cover remains valid.

Employer's liability insurance is one of those business essentials that you hope you will never need to use. But when an employee is injured and the claim lands on your desk, having the right cover in place is the difference between a manageable process and a financial catastrophe.