A successful claim can be costly—not just financially—but also to your organisation’s reputation. To protect yourself and comply with government regulations, you need employers’ liability (EL) insurance, which covers the cost of compensating employees that have been injured or fallen ill at work. Even if you only employ one person, you still need EL cover.

However, in addition to employees, you may also have volunteers, seasonal employees, contractors or other types of nonstandard staff that work for your organisation. Correctly classifying your employees—especially nonstandard ones—is crucial when estimating the level of EL cover you need. To help you avoid a costly employee misclassification mistake, review the following guidance.

What is EL Insurance?

Under the Employers’ Liability (Compulsory Insurance) Act (the Act), all organisations, with few exceptions, are legally required to have EL insurance if they employ full- or part-time employees.

The HSE enforces the Act and its inspectors can verify whether your organisation has the appropriate cover. During their inspections, they could ask to see your organisation’s certificate of insurance along with other insurance details. If you refuse or are unable to provide these documents, you could be fined up to £1,000. If you do not have the appropriate level of insurance, the HSE can fine you up to £2,500 every day.

In general, organisations are required to have at least £5 million of EL insurance, yet depending on your organisation’s particular risks and liabilities, you may choose to increase the amount of cover.

A comprehensive and effective EL policy should provide cover for the following types of employees:

  • All permanent employees
  • Contract, casual and seasonal employees
  • Abroad employees that spend at least 14 days continuously in Great Britain or more than seven continuous days on an offshore installation
  • Labour-only subcontractors

In addition, your policy should provide cover for the following positions even though they are unpaid roles:

  • Temporary staff—including students and people on work placements
  • Volunteers, advisors, referees and marshals
  • If you already have EL cover, any volunteers or unpaid employees will usually be covered by your policy. However, if you do not have EL cover, be sure to speak with Kennett Insurance Brokers before taking on any unpaid or other nonstandard employees.

If you employ workers (including offshore installations or associated structures), your company must carry Employers' Liability Insurance to avoid substantial fines.

Do I Need EL Insurance for all my Employees?

Your organisation is required by law to have EL insurance for all individuals that you employ under a contract of service or apprenticeship. This contract can be spoken, written or implied. Regardless of what type of contract you may have, what is important is the nature of your relationship and the degree of control that you have over the assigned work. If your organisation incorrectly classifies an employee—either intentionally or unintentionally—there could be severe penalties and fines. Not only that, but you could be liable for the full cost of a costly EL claim.

You may need EL insurance for people who work for you if they meet one or more of the following criteria:

  • You deduct national insurance and income tax from the money you pay them.
  • You have the right to control where and when they work along with their work processes.
  • You supply them with work materials and equipment.
  • You have a right to any profit your workers make. However, you may also choose to share this with them through commissions, performance-related pay raises or shares in the company.
  • You require that they only deliver the service and they are not allowed to employ a substitute if they are unable to do the work.
  • They are treated in the same manner as other employees.

However, you may not need EL insurance for someone who works for you if they meet one or more of the following criteria:

  • They do not work exclusively for you, such as an independent contractor.
  • They supply most of their own equipment and materials for the job.
  • They are clearly in business for their own personal benefit.
  • They can employ a substitute if they are unable to complete the work themselves.
  • You do not deduct income tax or national insurance. However, even if someone is self-employed for tax purposes, they may be classified as an employee for other reasons and you may still need EL insurance to cover them.

In general, your organisation will not need additional EL cover for volunteers or for the following individuals:

  • Students who work for you unpaid
  • People who are not employed but are taking part in a youth or adult training programme
  • A school student on a work experience programme

Verifying that you have correctly classified your employee’s status is crucial to defining estimates for an EL policy. If you misclassify an employee, you risk obtaining an EL policy that leaves your organisation vulnerable to substantial employee compensation claims.

Contact us to speak with one of experienced insurance professionals today!

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