Is Employers Liability Insurance required for Contractors?
With any business as you grow, you inevitably want to employ people to help you, that might be people providing just labour or they might be skilled trade’s people.
Unlike many other sectors of industry, the construction industry, in particular, doesn’t just have one type of employee as you would say in a factory where most people are likely to be employed and paid on a Pay as You Earn (PAYE) basis.
In the construction sector, there are of course PAYE employees as well as those providing just labour, commonly referred to as Labour-Only Sub-Contractors, there are also tradespeople who work independently, have their insurance covered and work as a standalone contractor, these are referred to as Bona-fide Sub-Contractors.
What is Employer’s Liability Insurance?
As an employer it’s a statutory requirement, meaning it’s a legal obligation to have employers liability covered as soon as you engage labour.
An employee is someone that carried out work for you under a contract of service, this can be either written or verbal, so you don’t necessarily have to have a full legally drawn up contract of service for your employee.
How do I know what type of Employee I have?
Particularly in the construction sector determining who is an employee can be a little difficult at times, whether they are employed on a PAYE basis or they are Labour Only Sun-Contractors you must cover them as being the same.
PAYE, is usually quite straightforward and just means that the employer takes deductions such as TAX and National Insurance Contributions.
Labour Only Sub-Contractors, should be treated as if they were a directly employed individual. Your insurer makes no general distinction between these and a PAYE employee and although you would need to differentiate yourself your insurer would treat as the same.
A labour-only subcontractor takes their instructions from you their employer, you are responsible for their health and safety, you would provide the materials as you would a direct employee.
Just because a labour-only sub-Contractor is self-employed and has their own insurance does not mean that you as an employer don’t need to have employers liability cover, you do.
Bona-fide Sub-Contractor These are completely different and would not be included at all under Employers Liability Insurance. A Bona-fide Sub-Contractor is responsible for their insurance, they would employ their own labour, have their own health and safety obligations and would charge you the employer for the contract including materials used.
Sometimes the difference between a Labour Only and Bona-fide Sub-Contractor is not that easy to distinguish and that is when the services of a broker are required, they will provide you with the necessary advice based on the information you have provided.
What cover does the Employer’s Liability provide?
We have seen where and when we need to have the cover in place but what does employers liability cover you for, the employer.
If an employee suffers injury or illness whilst working for you they have the right to claim compensation. In effect, it provides protection for the employee who possibly can’t work as well as the employer against legal costs for instance and any compensation payments that might have to be made to the employee.
Do I have to have Employers Liability for family members?
This can become a little complex but the simple answer is no.
If you are a sole trader or small business that just has the owner in the business who is then joined by a close relative then the Employers Liability Compulsory Insurance Act states that there is no obligation to provide employers liability cover for that close relative, the HSE provide an excellent publication that covers this subject, it can be obtained here https://www.hse.gov.uk/pubns/hse40.PDF
It should be noted though that the above does not apply where the business is a Limited Company or it’s incorporated. A director of a company is in fact just an employee.
Do I have to buy a Limit of Indemnity the same as Public Liability?
Employers Liability doesn’t work the same as Public Liability when it comes to an indemnity limit. The minimum legal amount of employers liability insurance is £5m, insurers however as standard provide a £10m limit of Indemnity.
Is a higher limit required, this depends on many factors such as the number of employees that may be in close proximity to each other, this could be underground or in confined spaces. In the event of injury to many of the employees, the claims could exceed £10million. Speak with a broker who can discuss this with you.
Can I buy Employers Liability on its own?
You could but this is usually when there is a need to do so, employers liability usually comes as part of a combined liability package which would usually include Public Liability insurance as the primary product.
Why deal with a Broker such as Real Insurance for your Contractors Employers Liability Insurance?
These days Insurance is obtainable from many sources, buying online can be cost-effective or cheap, there is, of course, a difference, ticking boxes on a web page is great but do you really understand what you are buying, are interpreting those questions the same as they are intended? When you have purchased your insurance, are you fully confident that you have done the right thing?
Dealing with an Insurance Broker such as Real Insurance means that you are getting many years even decades of hands-on experience, as well as knowledge something that most call center’s or online businesses cannot provide, and we even provide advice too, something that many don’t.
Contact us today and speak with one of our specialist advisors on 0330 058 0260.