Do I need Employers Liability Insurance if I employ my spouse?

Whilst it is not compulsory in the UK for a business to have Public Liability insurance (which covers the potential legal liability of a business to members of the public), it is compulsory for a business operating in the UK and with one or more employees to have in force a valid insurance covering them against Employers Liability. This is a requirement of the Employers Liability (Compulsory Insurance) Act 1969.

Employers Liability insurance protects the employer against his or her legal liability for compensation and associated legal costs in the event of an employee being injured or contracting an illness or diseae in the course of his employment. 

Minimum Levels of Cover
The Employers Liability (Compulsory Insurance) Act 1969 requires a minimum indemnity limit of £5,000,000 although most insurers offer a limit of £10,000,000 as standard.

If the business is part of a group, a policy covering the whole group including subsidiary companies may ne taken out, in which case the group as a whole must have cover of at least £5,000,000. Any associated companies (for example where the directors of comapny A are also separately directors of company B, but company B is not a subsidiary of Company A) must have their own cover each with a minimum of £5,000,000.

When deciding upon the level of cover appropriate to your own particular business it should be borne in mind that claims for employees when they are disabled as a result of an accident at work can add up to a huge sum when taking into account the cost of lost income, pain and suffering and the potentially lifelong care cost required. If more than one employee is injured in a single incident the indemnity limit has to be sufficient to cover the costs from all the employees injured in the same incident. Without cover to provide a sufficently high indemnity limit any such claims could bankrupt an employer.    

Which Firms are Exempt from having to take out Employers Liability cover
The following employers are exempt:
(a) most public organisations including Government departments and agencies, local authorities, Police authorities and nationalised industries;
(b) Health service bodies, including National Health trusts, health authorities, primary care trusts and Scottish health boards; some other organisations which are financed through public funds, such as passenger transport executives and magistrates' courst committees;
(c) family businesses where all of the employees are closely related to the employer. This includes any husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather ,stepmother, son, daughter, grandson, granddaughter, brother, sister, half-brother or half-sister. However, this exemption does not apply to family businesses which are incorporated as limited companies. This is because a limited company is regarded as a separate legal entity from its individual directors and you can't therefore be regarded the son or daughter of a limited company.
(d) companies employing only their owner where that employee also owns 50% or more of the issued share capital in the company.

What are the Consequences of not having Employers Liability cover?
The Health & Safety Executive (HSE) enforces the law on Employers Liability insurance and their inspectors will check that you have this cover with an approved insurer for at least the statutory minimum level of £5,000,000.

The fines are as follows:

£2,500 for every day which you are without insurance
£1,000 if you do not display the certificate of insurance or refure to make it available to HSE inspectors.

These fines would apply irrespective of whether there had been a claim. 

The insurer providing the cover must be authorised to do so. If they are not, you may be breaking the law and subject to the above fines. The Financial Services Authority (FSA) maintains a register of authorised insurers. You can check whether a company is authorised by searching their register on http://www.fsa.gov.uk/, or telephoning the FSA on 0207 066 1000.

In addition to the fines of course the business would be exposed to a potentially disastrous liability in the event of an employee being injured at work or contracting a disease in the course of their employment.

Who is an Employee?
The legal requirement for Employers Liability cover is for any business employing people under a contract of service or apprenticeship. The contract may be spoken, written or implied. There are a number of factors to be considered when determining whether a person is employed under a contract of service. Irrespective of whether you usually call someone an employee or self-employed or their tax status the following factors will be taken into consideration:
(a) You deduct National insurance and Income Tac from the money you pay them
(b) You have the right to control where and when they work and how they do it
(c) You supply most of the materials and equipment
(d) You have a right to any profit your workers make although you may choose to share this with them through commission, performance pay or shares in the company. Similarly you will be responsible for any losses.
(e) You require that person to deliver the service and they cannot employ a substitute if they are unable to do the work
(f) They are treated in the same way as other employees, for example, if they do the same work under the same conditions as someone you employ

The following factors may be persuasive in determining that they are not an employee:
(a) They do not work exclusively for you (for example, if they operate as an independent contractor)
(b) They supply most of the equipment and materials they need to do the job
(c) They are clearly in business for personal benefit
(d) They can employ a substitute when they are unable to do the work themselves
(e) You do not deduct Income Tax or National Insurance. However, even if someone is self employed for tax purposes they may be classed as an employee for other reasons and you may still need Employers' Liability. 
   
In most cases you will not need Employers' Liability insurance for volunteers of for
(a) students who work for you unpaid
(b) people who are not employed, but taking part in a youth or adult training programme, or
(c) a school student on a work experience programme.

Insurers will generally cover the above as part of their standard Employers Liability policy, and there is generally no need to inform your insurer if you take on any of the above. However, you should talk to your insurers if you take on the above either for long periods, ,or if they are undertaking any work that is not part of your company's normal business activities. You should also bear in mind the level of risk to which they will be exposed when they are working for you and it may be necessary to carry out a separate risk assessment.  

These are just a few observations regarding Employers Liability cover and the compulsory nature for emplyers. More observations next week.

In the meantime, if anyone has any queriesor observations regarding any of the above or their own requirements for Employers Liability for their own business please do not hesitate to be in touch.

A new blog for issues relating to all forms of Business Insurance

This is an exciting new departure for me into the World of the blogosphere. After 25 years in the UK Commercial Insurance sector as an Insurance Broker I am setting up this blog and inviting anyone to make comments on any issues or queries they may have with their Business Insurance, whether it be where to get a great deal for their portfolio of rental properties or what to look out for when adding a vehicle on to your Motor Fleet Insurance.

I will be writing on various Business Insurance related subjects which may be of interest and inviting people to air their views in an open forum so that they can use this blog as a resource of information and expert opinion.

If you have a business whether it be large or small, and you would like to get in touch please feel free to do so.

My first discussion subject will be posted later this week so please re-visit me then.