What is Employers' Liability Insurance?

Employers’ liability insurance (ELI) covers the cost of compensation and legal fees if an employee becomes ill or injured as a result of their work. It is a legal requirement for almost every UK business that has one or more employees, enforced under the Employers’ Liability (Compulsory Insurance) Act 1969.

If you employ anyone — including part-time, temporary, and apprentice workers — you almost certainly need this insurance.

The Legal Requirement

Under UK law:

• You must have employers’ liability insurance with a minimum cover of £5 million (most policies provide £10 million)
• The policy must be with an authorised insurer (regulated by the FCA and PRA)
• You must display your certificate of insurance (or make it available electronically) where employees can see it
• You must keep records of past policies for 40 years

Who Is Exempt?

A small number of businesses are exempt from the legal requirement:

• Sole traders and partnerships with no employees
• Businesses where the only employees are close family members (but only if the business is not a limited company)
• Some public bodies and nationalised industries
• Companies employing only the owner (though this is a grey area — if you are a director of a limited company, you may still be considered an employee)

If you use contractors or freelancers, you may also need ELI depending on the nature of the relationship. If HMRC or a court determines the individual is effectively an employee, you could face a claim without cover.

What Does ELI Cover?

Employers’ liability insurance covers claims from employees (current and former) who suffer:

• Physical injury — Accidents at work such as falls, machinery injuries, or repetitive strain
• Illness — Work-related conditions such as asbestos exposure, hearing loss, or stress-related illness
• Disease — Occupational diseases contracted through working conditions

The policy pays for:

• Compensation awarded to the employee (or their estate)
• Legal costs of defending the claim, including solicitors’ fees and court costs
• Claimant’s legal costs if you lose the case

What ELI Does Not Cover

• Your own injuries as a sole director or partner (you are not an employee)
• Third-party claims — Injuries to customers, visitors, or members of the public are covered by public liability insurance
• Motor vehicle incidents — Covered by motor insurance
• Professional negligence — Covered by professional indemnity insurance

Costs

The cost of employers’ liability insurance depends on:

Typical annual premiums for small, low-risk businesses start from around £50 to £100 per year. High-risk industries or businesses with claims history can pay significantly more.

ELI is often sold as part of a combined business insurance package alongside public liability and other covers.

Penalties for Non-Compliance

Failing to have adequate employers’ liability insurance carries serious penalties:

• Fine of up to £2,500 for each day you are uninsured
• Fine of up to £1,000 for failing to display or make available your certificate
• Unlimited civil liability — Without insurance, you would have to pay any compensation and legal costs from your own resources

The Health and Safety Executive (HSE) enforces compliance and can inspect your certificate at any time.

Your Duties as an Employer

Beyond holding the insurance, good practice includes:

Health and Safety

• Carry out risk assessments and act on the findings
• Provide adequate training for staff
• Maintain a safe working environment
• Provide appropriate personal protective equipment (PPE)
• Report serious incidents under RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations)

Record-Keeping

• Keep your ELI certificate for a minimum of 40 years (employees can claim for conditions that develop long after leaving your employment)
• Maintain accident books and incident records
• Document risk assessments and health and safety training
• Keep accurate accounting records of insurance premiums for tax purposes

Employee Communication

• Display your ELI certificate in a prominent location or ensure employees can access it electronically
• Make sure staff know how to report accidents and near-misses
• Provide information about their right to claim if injured

ELI on the Balance Sheet

The cost of employers’ liability insurance is an allowable business expense for Corporation Tax or income tax purposes. The premium appears as an operating cost in the profit and loss account.

If you pay your annual premium in advance, the unexpired portion at your balance sheet date is a prepayment (current asset).

How to Get Employers’ Liability Insurance

1. Assess your needs — Number of employees, nature of work, and any specific risks
2. Get quotes — Use a broker or comparison site. Specialist brokers are useful for higher-risk industries
3. Check the insurer — Ensure they are authorised by the FCA/PRA
4. Review the policy — Understand the cover limit, excess, and any exclusions
5. Display your certificate — Make it visible to all employees from day one

Related Insurance

Employers’ liability is often the first policy a business buys, but most employers need additional cover:

• Public liability insurance — Covers injury or damage to non-employees
• Professional indemnity insurance — Covers claims of professional negligence
• Key person insurance — Protects the business if a critical employee dies or is incapacitated
• Directors and officers insurance — Protects directors from personal liability claims
• Cyber insurance — Covers the financial impact of data breaches and cyber attacks
• Product liability insurance — Covers claims arising from defective products
• Business interruption insurance — Covers lost income after an insured event
• Workplace pension — Another legal requirement for most employers