Taking on your first employee is an important milestone for any small business. Whether you are expanding your workload, bringing someone into the business to help with day-to-day operations, or moving from working alone to employing a member of staff, there are several new responsibilities to consider.
One question many new employers have is whether they really need Employers’ Liability Insurance when they only have one employee.
In most cases, the answer is yes. In Great Britain, employers are generally required to have Employers’ Liability Insurance as soon as they become an employer, even if they employ just one person. The insurance must normally provide at least £5 million of cover and must be arranged with an authorised insurer.
Is Employers’ Liability Insurance Required for One Employee?
Yes, having just one employee does not usually exempt a business from the requirement to have Employers’ Liability Insurance.
The legal requirement is based on having employees, rather than the size of your workforce. This means that a business with one employee can have the same obligation to arrange Employers’ Liability Insurance as a business employing several members of staff.
For a small business or sole trader taking on their first employee, arranging the appropriate cover should therefore be part of the process of becoming an employer.
Employers’ Liability Insurance is designed to help cover compensation and associated costs if an employee becomes ill or is injured as a result of the work they do for you.
How Much Employers’ Liability Cover Do I Need?
The legal minimum level of Employers’ Liability Insurance is currently £5 million. However, businesses can choose to have a higher level of cover depending on their circumstances and the risks associated with their work. HSE guidance notes that many insurers provide £10 million of cover in practice.
The appropriate level of cover can depend on factors such as:
- The type of work your employee carries out
- The risks associated with your industry
- Whether your employee works on your premises or elsewhere
- Whether they use machinery, tools or other equipment
- Whether they work at customers’ properties or on construction sites
- The number of employees you have and your plans for future growth
When arranging cover, it is important to provide accurate information about your business and the work your employee will be undertaking.
What Does Employers’ Liability Insurance Cover?
Employers’ Liability Insurance is intended to protect your business if an employee suffers an injury or develops an illness because of their work and subsequently makes a claim against you.
For example, an employee could be injured while using equipment, slip or fall while carrying out their duties, or develop a work-related illness following exposure to particular workplace conditions.
The exact protection provided will depend on the terms, conditions, and exclusions of the individual policy, so it is important to understand what your insurance covers.
Employers’ Liability Insurance is specifically concerned with liabilities to employees. It is therefore different from Public Liability Insurance, which is generally intended to cover claims made by members of the public or other third parties in connection with your business.
Depending on the nature of your work, you may need both types of insurance.
What If My Only Employee Works Part-Time?
Employing someone part-time does not automatically remove the requirement for Employers’ Liability Insurance. The important consideration is whether the person is an employee rather than simply how many hours they work.
This is particularly relevant for small businesses that employ someone for a few hours each week. A business owner may assume that a limited working schedule means that Employers’ Liability Insurance is unnecessary, but part-time employment can still create employer responsibilities.
If you are unsure about the employment status of someone working for your business, it is important to establish their status rather than relying solely on how you describe the arrangement. GOV.UK advises employers to consider employment status carefully because different types of working relationships can carry different responsibilities.
What About Casual, Temporary, or Agency Workers?
Employment status can become more complicated when a business uses casual workers, temporary staff, contractors, or agency workers.
You should not assume that calling someone a contractor or self-employed worker automatically means Employers’ Liability Insurance is unnecessary. The nature of the working relationship and the individual’s employment status need to be considered.
GOV.UK guidance specifically highlights that the rules can differ for agency staff, freelancers, consultants, and contractors, so businesses should check their responsibilities before engaging people under these arrangements.
If your business is starting to use different types of workers, it is also worth discussing the arrangements with your insurance broker so that your policy reflects how your business actually operates.
Are There Any Exceptions?
There are some exceptions to the general requirement. For example, GOV.UK states that you do not need Employers’ Liability Insurance if you only employ certain close family members, including a spouse, civil partner, parent, child, sibling, grandparent, or grandchild. There are specific conditions around this exemption, so it should not be assumed simply because an employee is related to you.
There are also specific rules relating to employees based outside England, Scotland, and Wales. If your situation is unusual, it is sensible to check the current requirements rather than assuming that an exemption applies.
What Happens If I Do Not Have Employers’ Liability Insurance?
If you are legally required to have Employers’ Liability Insurance but fail to arrange it, there can be significant consequences.
GOV.UK states that you can be fined £2,500 for every day you are not properly insured. Employers must also display their Employers’ Liability certificate where employees can access it, and failure to do so can result in a further fine of up to £1,000.
For a small business, these potential penalties could be particularly damaging. More importantly, operating without the required insurance can leave you exposed if an employee suffers an injury or illness connected with their work.
Arranging appropriate cover before your first employee starts work can therefore help you meet your responsibilities as an employer and give you greater confidence as your business grows.
Arrange Employers’ Liability Insurance for Your Small Business
If you are taking on your first employee, Employers’ Liability Insurance should be one of the key considerations when preparing to become an employer.
For most businesses, having one employee is enough to trigger the legal requirement for Employers’ Liability Insurance. The minimum level of cover is currently £5 million, although your business may benefit from a higher level depending on its circumstances.
At Ashburnham Insurance, we can help you assess your business insurance requirements and find cover suited to how your business operates. Whether you are employing your first member of staff or expanding an existing team, speaking to an experienced insurance professional can help you understand the protection available to your business.