Employers' Liability Insurance: When It's a Legal Requirement

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6.2.1 The short version

Employers' liability (EL) insurance covers you if an employee is injured or made ill by their work and makes a claim against you. It pays compensation and legal costs, up to the limit on the policy.

In the UK, EL is compulsory for most businesses that employ anyone, even just one person. The legal minimum is £5 million of cover from an authorised insurer, though most policies provide £10 million as standard.

If you should have EL and do not, the HSE can fine you up to £2,500 for every day you are uninsured. So the basics are simple: as soon as you become an employer, you sort your EL policy and keep it in place.

6.2.2 Why it matters

One serious injury claim from an employee can run into hundreds of thousands of pounds once you add long-term loss of earnings and care costs. Without EL, that money has to come from you and your business.

EL is also a basic marker of being a responsible employer. If you have workers on site with no EL in place, you are breaking the law and leaving them and their families exposed if something goes badly wrong. Main contractors and public-sector clients will often insist you prove your EL cover before they let your people on site.

In other words, EL is not a "nice to have" you can skip to save cash. Once someone is effectively your employee, having no EL is a daily offence and a big personal risk.

6.2.3 What employers' liability actually covers

EL is there to cover claims made by your employees (or ex-employees) for injury or illness caused by their work. Typical examples include:

• A labourer injuring their back handling materials without proper equipment.
• A carpenter falling from height where you did not follow basic safety rules.
• A long-term health problem, for example from dust exposure, linked to their work for you.

A standard EL policy usually covers:

• Compensation for injury or disease suffered in the course of employment.
• Legal defence costs and the costs of settling or losing a claim.

It does not cover:

• Claims from members of the public (that is public liability, not EL).
• Your own injuries as the business owner (that is personal accident/income protection).
• Fines and penalties from regulators -- those sit with you, not the insurer.

6.2.4 When the law says you must have it

Under the Employers' Liability (Compulsory Insurance) Act 1969 and related regulations, you must have EL insurance if you are an employer, unless you fall into a specific exemption.

Key points:

• You must arrange EL "as soon as you become an employer".
• The policy must cover you for at least £5 million.
• The insurer must be authorised in the UK (checkable on the FCA Register).

The duty applies to almost all types of employees, including:

• Full-time and part-time staff.
• Temporary and seasonal workers.
• Apprentices and trainees.
• People who work for you in the UK, even if they are on casual or zero-hours arrangements.

You can be fined up to:

• £2,500 per day you should have had EL but did not.
• £1,000 if you fail to display your EL certificate or refuse to show it to an inspector.

6.2.5 Who counts as an "employee" in practice

This is where most small construction firms get caught out. You may need EL even if you do not think of yourself as an "employer".

In general, someone is likely to count as your employee if:

• You control what work they do, where and when.
• You supply most of the tools, plant or materials.
• You are responsible for their health and safety on site.
• They cannot send someone else to do the work in their place.

Construction examples where EL is usually required:

• You run a limited company and pay yourself a wage via PAYE -- you are technically an employee of your own company.
• You have a mate who "helps you out most days" on day-rates and you direct their work.
• You take on an apprentice or labourer, even if they are on minimum wage or part time.

Examples where you may not need EL (but double-check):

• You are a sole trader with no staff, and you only ever work alongside genuinely independent subcontractors who invoice you and work for others.
• You only use bona fide subcontractors who carry their own EL and PL, control their own work, and can substitute another worker.

Because the line can be blurry, HSE and insurers recommend you treat anyone who looks and behaves like staff as an employee for EL purposes. If in doubt, assume you need EL and price your work accordingly.

6.2.6 Exemptions and special cases

The law allows a few narrow exemptions.

Common ones include:

• You are a sole trader with no employees at all.
• You run a family business and only employ close family members, and you are not incorporated as a limited company (though many still choose to buy EL).
• Certain public bodies and nationalised industries (not relevant for most private construction firms).

Important detail for limited companies:

• A limited company normally needs EL if it has more than one employee, including directors.
• If you are the only employee of the limited company and own more than 50% of the shares, you may be exempt -- but as soon as you hire anyone else, you must have EL.

If you are relying on an exemption, document why (for example, you only use named bona fide subcontractors with their own EL) and review it regularly as your business grows.

6.2.7 Displaying your certificate and proving cover

By law you must:

• Hold a current EL certificate showing the minimum cover and the insurer's details.
• Display it where employees can easily see it, or make it available electronically.
• Produce it to an HSE inspector if they ask.

In practice on construction sites, you will also be asked to:

• Upload your EL certificate to main contractor portals or send it with your pre-qualification pack.
• Confirm your EL limit (usually £10 million) in questionnaires and contracts.

If your policy is with an authorised insurer, you can cross-check them on the FCA Financial Services Register. This is also a good way to spot fake or "too cheap to be real" policies.

6.2.8 Typical limits for construction

The legal minimum is £5 million, but most EL policies aimed at construction businesses provide £10 million as standard. Insurers and brokers often recommend the higher limit because:

• Serious injury or disease claims can be very expensive over a lifetime.
• You may have more than one claim on the same policy year.

For a small building firm or trade business, £10 million EL is now pretty much the normal level and is often expected by bigger clients. Larger firms, or those doing very high-risk work, may need higher limits -- your broker should flag this.

6.2.9 Quick EL health check

You are in reasonable shape on EL if you can answer "yes" to these:

Do you have an EL policy in force today, with at least £5 million cover (and ideally £10 million if you are in construction)?

Is your insurer on the FCA Financial Services Register?

Do you understand who in your business counts as an "employee" for EL purposes?

Can you find and share your EL certificate within a couple of minutes if a main contractor or HSE inspector asks?

Have you checked in the last year that your worker arrangements (labourers, apprentices, "mates") still match what your policy expects?

Any "no" here is something to fix now, not when you are dealing with an injury on site.

6.2.10 What to do next

• If you have anyone working for you -- even one labourer, apprentice or "mate" you direct -- get EL in place now.
• Check your EL certificate is current, shows at least £5 million cover (£10 million is standard), and is from an FCA-authorised insurer.
• Display the certificate where employees can see it or make it available electronically.
• Review your worker arrangements at least once a year to make sure everyone who counts as an employee is covered.

6.2.11 Who to contact

• Your insurance broker -- to arrange or review EL cover (paid)
• FCA Financial Services Register -- fca.org.uk/firms/financial-services-register -- to check your insurer is authorised (free)
• Financial Ombudsman Service -- 0800 023 4567, financial-ombudsman.org.uk -- if you have a complaint about your insurer (free)
• HSE -- hse.gov.uk -- for guidance on employers' liability requirements and exemptions (free)
• Citizens Advice -- citizensadvice.org.uk -- for general guidance on employment and insurance rights (free)

6.2.12 Sources and legislation

• Employers' Liability (Compulsory Insurance) Act 1969 -- legal requirement for EL insurance. legislation.gov.uk/ukpga/1969/57
• Employers' Liability (Compulsory Insurance) Regulations 1998 -- minimum cover and exemptions. legislation.gov.uk/uksi/1998/2573
• Consumer Insurance (Disclosure and Representations) Act 2012 -- disclosure duties when arranging cover. legislation.gov.uk/ukpga/2012/6
• Road Traffic Act 1988 -- vehicle insurance requirements for work vehicles. legislation.gov.uk/ukpga/1988/52

6.2.13 Related guides on this site

• 6.1 Public liability insurance
• 6.10 Insurance for subcontractors
• 6.6 Personal accident cover
• 6.9 Making an insurance claim
• 15.5 Taking on your first employee
• 5.10 Pension auto-enrolment

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