Almost every business insurance is optional. You can run a perfectly legal company with no public liability cover, no professional indemnity, no contents policy and no cyber cover, and thousands do. Employers' liability is the exception. Under the Employers' Liability (Compulsory Insurance) Act 1969 it is a legal requirement, it starts the day your first employee starts, and the penalty is calculated per day rather than per offence.
The figure that concentrates minds: you can be fined up to £2,500 for any day on which you are not properly insured. That is not a cap on the whole breach. That is a daily rate.
What the law actually requires
Cover of at least £5 million against the risk of employees being injured or made ill by their work. In practice most insurers issue £10 million as standard because the difference in premium is negligible, but £5 million is the statutory floor.
There is a second, separate duty: you must have the certificate available to your employees, and you must be able to produce it to a Health and Safety Executive inspector on request. Since October 2008 making it available electronically is enough, provided employees can reasonably get at it, so a copy on the shared drive or the staff intranet satisfies the requirement. Failing to display or produce it carries its own fine of up to £1,000, entirely separate from the £2,500 a day for having no policy.
Who counts as an employee for this
Wider than most owners assume, and deliberately so. It is not limited to people on a permanent contract. Casual staff, part-timers, people on zero-hours arrangements, temporary summer help, apprentices and students on placement all generally need to be covered.
Labour-only subcontractors are the classic trap. If you supply the materials, direct the work, decide the hours and provide the tools, that person is very likely to fall inside your employers' liability cover regardless of how they are invoicing you and regardless of whether they are registered under CIS. Genuine bona fide subcontractors working under their own control and their own insurance sit outside it. The distinction turns on the reality of the relationship, not the paperwork, which is exactly the same test that decides whether someone is an employee, a worker or self-employed.
Insurers are far more relaxed about being told you have an extra pair of hands on site than about discovering it when the claim lands.
The exemptions, and how narrow they are
Two exemptions genuinely exist, and both are narrower than the version repeated in pubs.
The first covers most limited companies with only one employee, where that employee owns 50% or more of the issued share capital. A single-director company with no staff is generally exempt. Take on one part-time assistant and the exemption is gone that morning.
The second covers family businesses that are not incorporated, where all employees are close relatives. The words that catch people are the second condition: not incorporated. The moment a family business becomes a limited company, the exemption falls away even though nothing about the work or the people has changed. Any business with a limited company at the top of it that employs anyone should assume it needs the policy.
Putting a number on it
Take a five-person joinery firm. Employers' liability might sit somewhere around £600 to £1,200 a year depending on trade, claims history and payroll, and is usually bundled into a combined policy with public liability and tools cover.
Now the other side of the arithmetic. Trade uninsured for a quarter and the maximum exposure is 90 days at £2,500, which is £225,000 in fines before a single claim is considered. If an employee is injured in that period, the claim itself is uninsured too, and serious injury claims involving loss of earnings and care costs run into six figures. Against that, £1,000 a year is not really a cost. It is the cheapest legal obligation you will meet all year.
Keeping the certificates, even though you no longer have to
Until 2008 employers had to keep every certificate for 40 years. That requirement was removed, and a lot of businesses cheerfully started binning old ones.
Keep them anyway. Industrial disease claims — noise-induced hearing loss, dermatitis, respiratory conditions, asbestos exposure — surface decades after the work was done, and the first thing anyone needs to establish is which insurer was on risk in which year. If nobody can find that out, the claim lands on the business, or on you personally if the business no longer exists. A folder of PDFs going back to your first hire costs nothing and is the single easiest piece of long-term protection a small employer can put in place.
What to do this week
Check the policy actually names your correct legal entity, not a trading name or a predecessor company. Check the wage roll declared to the insurer matches what you are now paying, because a policy priced on two staff when you have five is an argument waiting to happen at claim time. Put the current certificate somewhere every employee can see it. And when you take on the next person — casual, temporary, family, anyone — tell the insurer before their first shift rather than at renewal. That call takes two minutes and is the whole of your compliance obligation. The rest of the paperwork around a new hire is covered in what a first employment contract needs.
Common questions
Do I need employers' liability insurance if I only employ one person part-time?
Yes. The duty is triggered by employing anyone, not by employing them full-time or for a minimum number of hours. A Saturday assistant, a summer temp and a two-day-a-week bookkeeper on your payroll all bring the requirement into effect from their first day. The only routine exception is a limited company whose sole employee owns 50% or more of the issued share capital, which covers the typical one-person company with no staff. Hire a single part-timer into that company and the exemption ends immediately, so the policy needs to be in place before their first shift rather than at your next renewal.
Are subcontractors covered by my employers' liability policy?
It depends on how they actually work, not on what the invoice says. Labour-only subcontractors — where you provide the materials, direct the work and control the hours — are generally treated as employees for this purpose and should be inside your cover. Bona fide subcontractors running their own business, using their own equipment and carrying their own liability insurance normally sit outside it. Being registered under CIS does not settle the question either way. Tell your insurer who is on site and in what capacity, and ask them to confirm in writing which side of the line each arrangement falls, because the answer changes your exposure entirely.
What is the fine for not having employers' liability insurance?
Up to £2,500 for each day the business trades without suitable cover, which is a daily figure rather than a one-off penalty, so a lapse that runs for months becomes very large very quickly. There is a separate fine of up to £1,000 for failing to display the certificate or refusing to make it available to a Health and Safety Executive inspector who asks for it. Beyond the fines, the far bigger exposure is the uninsured claim: an employee injury claim involving lost earnings and long-term care is not capped, and lands directly on the business and potentially on the directors.
How much employers' liability cover do I need?
The statutory minimum is £5 million, and that is the number the 1969 Act specifies. In practice almost every UK insurer issues £10 million as standard because the extra layer costs very little, and some contracts and public-sector tenders specify £10 million as a condition of working with you. Check what your own client contracts require before you buy on price, since being underinsured for a contract you have already signed is a commercial problem as well as a legal one. The premium difference between the statutory floor and the market standard is rarely worth the argument.
