If you employ any members of staff, employers’ liability insurance protects you against the cost of any claims made against you (as an employer) for an injury to an employee, or even following a death.
The cover funds the cost of professional representation, and if the employer is found to have been at fault, any damages that are subsequently awarded to the claimant.
Past employees may also file a claim in the future if an illness or injury occurred during their employment at your company.
But, do you need to take out cover if you’re an IT contractor, working via your own limited company?
Most IT contractors working through their own limited company without employees will not be legally required to take out employers’ liability insurance.
What does the law say?
Most employers must take out EL cover. This obligation is enshrined in the Employers’ Liability (Compulsory Insurance) Act 1969.
Read this PDF for further details.
It is always a legal requirement to take out cover if you have employees.
However, there are some notable exceptions to this rule – the first being of particular relevance to contractors.
- If you run your own limited company, are the sole employee, and own 50% or more of the shares, your company is exempt.
- If you run an unincorporated family business, and all your employees are close relatives, you are also exempt. Importantly, the family business exemption doesn’t apply to limited companies.
- Does your spouse work for your limited company, even on a part-time basis, to do admin work? In this case, you do need to take out EL cover. Even if your spouse is very unlikely to ever claim against the company!
How much employers’ liability cover should you have?
You must have a minimum cover of £5m in place according to the law. Most insurers provide a ceiling of £10m as standard.
This amount will be used to cover both the costs of defending a claim and any compensation awarded.
Why should contractors take out EL cover if it’s not a legal requirement?
So, if most IT contractors work alone and have no staff, are there any reasons to take out EL cover regardless?
- In many cases, clients stipulate that contractors must have public and employers’ liability insurance, even if there is no legal requirement to do so.
- Public and Employers’ liability insurance is usually sold as one unit, so if you require the former, you will also receive cover for the latter.
- Many contractor insurance packages are competitively priced. So if you take out Professional Indemnity cover, the incremental cost of including business liability is likely to be small.
What happens if you don’t take out cover?
If your business is not exempt from taking out EL insurance, the consequences for not doing so are severe.
The Health & Safety Executive (HSE) has the authority to check your business’s insurance coverage and view its insurance certificate.
You face a £2,500 fine for each day your business remains without cover. The HSE can also fine you £1,000 if you fail to produce your certificate when asked.
Of course, the vast majority of contractors are not legally obliged to take out EL cover.
This information is included for the sake of completeness.
Employers’ liability insurance FAQs for contractors
Do I need employers’ liability insurance if I am the only director and employee?
No, in most cases, you are exempt if you are the sole employee of your limited company and own at least 50% of the shares. This is the most common position for IT contractors.
Do I need employers’ liability insurance if my spouse works for my company?
Yes. Even if your spouse only carries out part-time administrative work, they are classed as an employee. In this case, employers’ liability insurance is legally required.
What if I occasionally use freelancers or subcontractors?
It depends on the working arrangement. If the individual operates independently, they may not be classed as an employee. However, if you control how and when they work, they may be treated as employees for insurance purposes, which could mean cover is required.
Do I need employers’ liability insurance for inside IR35 contracts?
No. If you are working inside IR35 via an umbrella company, the umbrella provider is responsible for insurance cover, including employers’ liability. You would not normally need your own policy.
Why do some agencies require employers’ liability insurance even if I am exempt?
Some agencies and clients apply blanket insurance requirements across all contractors. This is often for risk management purposes rather than a strict legal necessity, particularly in larger organisations.
Can I be fined even if I did not realise I needed cover?
Yes. If you are required to have employers’ liability insurance and do not, the penalties can be significant. Citing a lack of awareness is not generally accepted as a defence.
Is employers’ liability insurance worth having if I am exempt?
In most cases, no. If you have no employees, the risk is minimal. However, it is often included at low cost as part of a combined contractor insurance policy, particularly if it’s a contractual requirement.
How can I take out cover?
For competitively priced EL cover, together with Public Liability and Professional Indemnity insurance, try our long-term partner, Qdos.