Having no Employers’ Liability Insurance will cost you £4000

January 2016 saw a takeaway shop getting fined £2,000, with costs of £2,360, for failure to produce an ELCI (Employers Liability Compulsory Insurance) certificate.

Cheltenham Magistrates’ Court heard how local fire protection services notified the HSE that the business did not have ELCI.  After numerous letters to the Takeaway business they failed to provide a copy of their insurance.

The Company was prosecuted and found guilty of an  offence under Section 4(2)(b) of the Employers Liability Compulsory Insurance Act 1969.

What is employers’ liability insurance?

The Employers’ Liability (Compulsory Insurance) Act 1969 requires ALL employers in the UK to have at least a minimum level of insurance cover to provide compensation to employees who may be injured or suffer ill health as a result of their work activities.

Companies may also have insurance to cover road traffic accidents and Public Liability insurance is often required where there is a risk of injury to members of the Public.

While public liability insurance is generally voluntary, employers’ liability insurance is compulsory.

As this case shows employers can be fined if they do not hold, or fail to produce evidence of a current employers’ liability insurance policy which complies with the law.

When purchasing Employers Liability employers should check that their provider is properly authorised to sell insurance and register with the Financial Conduct Authority.

When taking out employers’ liability insurance employers enter into an agreement with the insurer about the circumstances in which the Insurance will pay compensation. For example, the policy will cover the specific activities that relate to your business.

However conditions which could restrict the amount of money the  insurer might have to pay can not be imposed and employers should be careful not to sign up to policies including such conditions.

Similarly Employers should ensure that their insurers do not impose the following conditions.  Insurers selling ELCI cannot refuse to pay out because;-

• you have not provided reasonable protection for your employees against injury or disease;
• you do not keep specified records or cannot provide the insurer with information from those records;
• you have done something they told you not to do (for example, said it was your fault);
• you have not done something they told you to do (for example, report the incident); or
• you have not met any legal requirement connected with protection of your employees.

Insurers cannot impose conditions which make employers, your employee, or former employees pay part of any claim.

Employers Liability Insurance purely provides cover to compensate employees should they become ill, as a result of their work, or suffer a work place accident. There is no cover for legal costs or fines associated with any criminal charges brought by the Police, HSE or Local Authority following a workplace accident.

Employers must have minimum of at least £5 million cover. However, you should look carefully at your risks and liabilities and consider whether you need insurance cover of more than £5 million. In practice, most insurers offer cover of at least £10 million.

Employers must display a copy of their certificate of insurance where employees can easily read it.  This must include details of the Provider, the Policy Number and the amount of cover provided.

Since 1 October 2008 employers are able to display the certificate electronically on an intranet site or shared folder Employers choosing this method need to ensure their employees know how and where to find the certificate and have reasonable access to it.   In many businesses a paper copy displayed on a Notice Board continues to be the most effective method of displaying the certificate.

When do I need employers’ liability insurance?

Employers liability Insurance is required to cover anyone who works for you, they may be self-employed or indirectly employed.  If they are under your control they need to be covered by your Employer Liability Insurance.

You are likely to require employers’ liability insurance for someone who works for you where

• you deduct national insurance and income tax from the money you pay them;
• you have the right to control where and when they work and how they do it;
• you supply their work materials and equipment;
• 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;
• you require that person only to deliver the service and they cannot employ a substitute if they are unable to do the work; or
• they are treated in the same way as other employees, for example, they do the same work under the same conditions as someone else you employ.

Employers’ liability insurance may not be required for people who work for you where:

• they do not work exclusively for you (for example, if they operate as an independent contractor);
• they supply most of the equipment and materials they need to do the job;
• they are clearly in business for their own personal benefit;
• they can employ a substitute when they are unable to do the work themselves;
• 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 the purpose of Health and Safety legislation.

There are a number of Insurance products on the market that provide Legal Expenses cover, these should not be mistaken for Employers Liability Insurance.

In this case the Employer was fined however a lack of Employers Liability Insurances could result in a substantial injury claim being awarded against an employer which they would need to pay out from other sources.