Employer and public liability insurance explained for business owners

Starting a business is stressful enough without taking things like public and employment liability into consideration. But with an ever-growing sum of company cash being spent on insurance policies, it has never been so important to make the right choices on cover.

This article was written for and first featured in Fridge Magazine.

In light of the UK’s recent economic downturn, followed by what’s been a slow-moving recovery, many new businesses are constantly looking for ways to cut costs while strengthening their safety net. This means that it’s absolutely vital to understand the different types of insurance cover, as well as the differences between them. Although many businesses are seeking to trim away excess spending, making the wrong decision could lead to some seriously expensive consequences! So here is a simple refresher guide for the business owner, on public liability and employer liability insurance – from Keystone’s Cordelia Rushby.

Public liability (PL) insurance vs employer liability (EL) insurance

PL insurance refers to cover that will protect you in the event that a customer or member of the public is injured or their property damaged as a result of your business. Conversely, EL insurance protects the people who work for you, ensuring that you are able to pay damages if one of your employees is injured while working.

PL insurance is not a legal requirement, but it is good business practice and having cover is a prerequisite of working for a local authority. However, it is compulsory to have EL insurance in all but exceptional circumstances. The Employers’ Liability (Compulsory Insurance) Act 1969 requires employers to have at least £5 million of cover (more depending on the business activity). Most insurance companies provide £10 million of EL insurance as standard. EL insurance is compulsory because employers are responsible for the health and safety of their employees while at work. If an accident occurs and an employee is injured or made ill as a consequence of work-related activities, they will have a potential claim for compensation against the employer. Work experience students and voluntary/unpaid ‘helpers’ are classed as employees and consequently if you retain them, you must have the relevant EL insurance as this will help you pay the cost of compensation (damages and costs, less any excess you have agreed.) Even where a company ceases trading or goes into liquidation, it is still liable for payment for such claims.

Consequences of not having EL cover?

• The Health and Safety Executive (HSE) enforces the law on EL insurance. If a company does not have EL insurance, it can be fined at a rate of £2,500 for every day the company has traded without it.
• The EL insurance certificate must be displayed where your employees can access it. A company can be fined up to £1000 for not displaying the certificate or failing to make it available to an HSE inspector.
• In the event of an accident, the company will not only be prosecuted for having no insurance, it will remain liable to the injured party and have to pay out of its own funds, all the compensation, its own legal costs and the claimant’s costs. In many cases this would result in the company ceasing to trade.

Who doesn’t need EL Insurance?

You do not need cover if: you are a sole trader with no staff; run an unincorporated family business (in which all of your employees are closely related to you); the company employs only you the owner, where you own 50% or more of the share capital of the company. However a word of caution, if you fall into any one of these exceptions, yet retain work experience students or unpaid volunteers, you must have EL insurance.

EL and PL insurance overview

EL is often combined with PL insurance, to provide upwards of £10 million cover for everyone included in your business. Keep in mind that even senior management and company directors are classed as employees in this type of policy.

Covering yourself for EL and PL is not just a safe bet – it’s often a legal requirement! If your business is not insured and one of your employees goes on to file a claim, you’ll find the costs could soon add up, with the addition of legal fees if your case is not successful.

Don’t risk it. Take out a policy to provide the right cover to you and your employees during the working day.