Many of the UK's small businesses risk fines by not having compulsory employers' liability insurance

Our latest research surveyed 502 decision-makers at small businesses between 3 February and 13 February 2023.

The results have shown us which business insurance policies these small businesses are planning to take out (or do without) throughout 2023.

The insurance type likely to have the biggest increase in 2023 is directors’ and officers’ liability, with a net increase of 17%. Stock insurance followed closely at 16%, and both key person and legal protection insurance showed a 15% increase.

However, our research unearthed some unexpected results.

We estimate that over 160,000 small businesses in the UK with between one and nine employees will not have employers’ liability (EL) insurance by the end of 2023.

This is based on the fact that 8% of businesses of this size said they do not have employer’s liability insurance and will not be taking it out, and a further 6% who are currently protected, will stop their cover by the end of the year. Government statistics show there are currently 1,187,045 SMEs in the UK with 1-9 employees so 14% of this group is 166,186 unprotected businesses, to be precise.

The basics of employers’ liability insurance?

EL insurance provides financial protection for employers against claims made by employees who have suffered injury or illness as a result of their work.

If you run one of these small businesses you may be under the impression that your business does not pose any significant harmful risk to your employee. However, there are potential threats in any business environment. More on that later on but even when risk is managed, EL is a must. That’s because, in the UK, this form of insurance is required by law.

The Health & Safety Executive (who set the law on employee welfare) states that your policy must cover you for at least £5 million but many insurers recommend at least £10 million to give full peace of mind. Small businesses can be fined up to £2,500 for each day that they are uninsured.

Who is exempt from employers’ liability insurance?

Not every small business requires EL insurance – but most do!

If you are not a limited company and only employ close family members, you may be exempt from EL insurance. Close family members include your spouse, parents, children, siblings, grandparents, grandchildren, aunts, uncles, and nieces and nephews.

You may also be exempt if your business is a limited company, but you only have one employee. This employee must own at least 50% of the company’s issued share capital.

This is also the case if your employees are based outside of the UK but should your employees return for more than 14 continuous days, you will need EL insurance to protect them.

Don’t think that employing cheap labour such as interns, work experience students or apprentices alters the position. Employers have the same responsibilities for the health, safety, and welfare of all employees regardless of age and seniority, so EL would be required for all temporary employees too.

The benefits of employers’ liability insurance

If your business does not meet the exemption criteria, legally you must be covered by EL insurance. Without an EL policy in place, your business may face fines and legal penalties, risking both financial and reputational damage.

EL insurance provides financial protection if an employee encounters harm and believes the employer to be liable for this harm – costs that probably exceed the funds available to most small businesses in savings.

Most insurers will require you to uphold various health and safety standards to qualify for EL cover. This creates a safer working environment for you, your employees, and any customers or visitors that may visit your workplace.

Having the protection of EL insurance can provide peace of mind to both you as the employer, and your employees. You can relax knowing that you are financially protected if an accident or illness occurs. Your employees can be confident that you’ve taken steps to provide a safe working environment. They can also know that you’re willing to take responsibility if anything goes wrong.

Types of business risk

The reasons why an employee may hold an employer to account are endless but some examples include:

• In a restaurant setting, a chef staff burns themselves on an oven, which they believe to have been improperly installed or serviced by their employer.

• In an office, an employee injures their back when moving boxes and claims they were given insufficient training on how to do that task.

• On a building site, an employed carpenter breaks their leg falling from height and is unable to travel to and from their workplace.

• In an industrial setting, a previous employee contacts the employer as they believe a respiratory illness in later life is due to their previous employment.

These are just a few examples of the circumstances in which an employee may try to claim against their employer.

The cost of employers’ liability insurance

The price of your policy will depend on a variety of factors. The size of your business, the nature of the work, and the level of associated risk are key aspects when calculating the premium. Insurers are also likely to consider your previous claims history and how much you wish to be protected for.

While insurance is admittedly a grudge purchase for many, this is one policy that most small businesses have no choice but to buy. However, remembering the potential fines, legal costs, and possible compensation claims that a business would have to pay without it, could make it a slightly less bitter pill to swallow.

Choosing the right insurer

There are a wide range of insurers that offer EL insurance to small businesses. This cover is important, so you want to be confident that your policy is robust and that your insurer is reputable.

Reading customer reviews is one of the best ways to gain insight into a company and its policies. Find out what other business owners have to say about their experience with each provider. This collective wisdom can help you make an informed decision when taking out your own policy.

If you have, or have recently held, employers’ liability insurance, leave a review today. An honest review can help other employers, but it can also provide the insurer with all-important feedback which can assist them in shaping their products to meet the needs of small businesses in the future too.

If you can’t find your provider, feel free to contact us at [email protected] so we can add your insurer to the site. Together, we can help people like you make better decisions.