It is compulsory for employers to take out Employer’s Liability Insurance (EL) cover of at least £5million and you can be fined for failing to do so. The former managers of the Hinds Head in Charnock recently learnt this to their cost. They employed a chef, a cleaner and waiting staff but failed to take out the necessary EL cover despite receiving a warning from the Health and Safety Executive (HSE) who are responsible for enforcing the obligation. They were fined £1,200 for being in breach of the Employer’s Liability (Compulsory Insurance) Act 1969 and ordered to pay prosecution costs of £2,620.
Trying to cut costs ended up costing them dearly. Even more concerning to you than the potential fine for being uninsured is the prospect of being liable to pay compensation to a member of staff who has suffered a life changing injury and the effect that this would have on your business.
What does EL cover?
An EL policy covers your business for claims made against you for illnesses or incidents suffered by your staff, either on your premises or offsite, as a direct result of their work for you. Motoring incidents must be covered separately. You may well also hold public liability insurance which covers claims made against you by members of the public or other businesses.
Who needs EL?
It is compulsory to take out EL if you employ anyone other than yourself and your immediate relatives. A husband and wife team running a pub would not need to take out EL but take care as the obligation will arise as soon as they employ a cleaner, chef, barmaid etc. In practice all but a very few pubs, restaurants, clubs and other leisure outlets will be required by law to carry EL.
If your business is part of a group then it is possible to take out a group policy. The group, including subsidiaries, must have cover of at least £5million.
Is it only “employees” who are covered?
You are required to take out EL to cover anyone who you employ under a “contract of service or apprenticeship”. This is wide enough to cover more than just those who you employ under an employment contract.
Generally, someone is defined as your employee if:
• they are under a contract of service;
• you deduct National Insurance contributions and income tax from the salary you pay them;
• you control when, where and how they work;
• they cannot employ a substitute when they are unable to work.
However, someone employed under a “contract of service” covers more than those who you might traditionally regard as your “employees”. It covers all those who are not genuinely self-employed. It can be difficult to determine whether or not a relationship amounts to an employment and there is no definition in legislation to help. Instead the Courts weigh up the factors which point to an employment relationship (e.g. payment of employer tax and NI, degree of control, whether there is a right to provide a substitute) against those that point to a contractor or self employment and will then decided whether or not a person is employed by you. It is important to be aware that there may be individuals e.g. a handyman or decorator, who works at your premises who you do not regard as your employees but who a court may decide should be covered by your EL policy.
A good example of this, in the health and safety context, was the case of Lane V Shire Roofing. Mr Lane was hired by Shire Roofing for individual jobs. Shire Roofing agreed a price and sent him to do repair the porch of a private house. He fell off a ladder and was badly injured. The Court decided that he was an employee of Shire Roofing and it was the business of Shire Roofing that he was carrying out not truely his own business. He was more like a labourer than a sub-contractor. Each case will be looked at on its facts but you should be aware that it is possible that a handyman, for example, who works at your outlets may be classified as working under a contract of service for the purposes of health and safety legislation.
Most EL polices contain a wide definition of “employee” which will cover most circumstances.
Responsibility for Health and Safety of Employees
Taking out an EL policy does not mean that you can ignore your responsibilities for the health and safety of your employees. You will need to carry out suitable risk assessments and be able to show that you have taken all reasonable measures to protect your staff. If you cannot show this then your insurer may be able to claim against you for the cost of the compensation which it has paid to your employee.
Requirement to Display certificate of EL
You must display a copy of your EL certificate where employees can easily read it. You can display it either:
• as a paper copy, eg as a photocopy pinned to a notice board
• electronically, eg as a page on your intranet or as a document in a shared folder on your network. Employees must know how to access this and must have reasonable access to it. This may be suitable where all staff have computer access as part of their work.
You also need to make your EL certificate available to health and safety inspectors on request.
Financial Penalties for non-compliance
You can be fined up to £2,500 per day when there was no certificate of insurance in force covering your business.
You can also be fined up to £1,000 for failing to display your insurance certificate or failing to produce it during a spot check by the HSE (even if you actually have the cover).
Practical Tips
To ensure that your policy is valid and that you are complying with the law you need to check that your EL insurer is authorised. To do this you should check that they are registered with the Association of British Insurers.
