In 2024/25, 680,000 UK workers said they had been injured at work. However, employers formally reported just 59,219 of those injuries to the Health and Safety Executive.
Most businesses hold an employers’ liability certificate and treat the matter as closed. But the policy covers employees, and employment status is not decided by what your paperwork calls someone. If you have never tested that distinction, you may be paying for cover that leaves half the people on your site outside it.
The experts at Rigby Financial have compiled a guide explaining what employers’ liability insurance cover does, who it includes, and how you can check.
What is employers’ liability insurance?
Employers’ liability insurance pays the compensation and legal costs when an employee is injured or made ill because of their work. Your insurer settles the claim and funds the defence, so the bill doesn’t land on your business.
A claim starts when a current or former employee alleges that your negligence caused them harm. That might have been an accident last month, or it could even be a condition diagnosed 20 years after they left.
Public liability is a separate policy cover protecting against claims from third parties, such as clients, site visitors and passers-by.
Do you need employers’ liability insurance?
If you employ anyone, yes. The Employers’ Liability (Compulsory Insurance) Act 1969 makes cover compulsory for most UK businesses, and the duty begins with your first employee.
Part-time, temporary and casual staff all count, as do people on work experience. The number of hours someone works has no bearing on whether they need to be covered.
The law sets a minimum of £5 million of cover from an authorised insurer, and that £5 million is inclusive of costs rather than sitting on top of them (HSE guidance). Most insurers issue £10 million as standard, because serious injury and occupational disease claims can run well past the statutory floor.
In construction and manufacturing, employers’ liability rarely sits on its own. It usually forms part of a wider arrangement alongside public and product cover.
Who counts as your employee?
This is the question that decides whether you’re compliant, and it’s not answered by a job title or an invoice.
Status is decided by the working relationship. Who controls how and when the work gets done? Who supplies the tools and materials? Is the person in business on their own account, carrying their own financial risk?
The assumption we hear most often is that anyone who invoices for their time cannot be an employee. Invoicing tells you how someone gets paid, but nothing about their status.
Four arrangements catch businesses out most:
- Labour-only subcontractors: Someone who works the hours you set and uses your equipment can be classed as an employee, whatever the contract says.
- A bona fide subcontractor: An independent, self-employed business/person or specialist hired to complete a specific task on a project. They work without direct supervision, supply their own tools and materials and carry their own liability insurance. They would not be covered under the employer’s liability cover.
- Agency workers: The cover usually sits with the agency but not always. The position depends on the terms of the supply agreement.
- Family members: A spouse doing two days of admin a week is classed as an employee. Incorporated family businesses lose the family exemption altogether, too.
If you cannot say confidently which side of the line each of your people falls on, that uncertainty can leave your businesses exposed.
Who is exempt from employers’ liability insurance?
There are three categories exempt from employers’ liability insurance, but two disappear the moment your business structure changes.
- A limited company whose only employee owns 50% or more of the issued share capital.
- An unincorporated family business that employs only close relatives, such as a spouse, civil partner, parent, child or sibling.
- Most public bodies, including government departments, local and police authorities, NHS bodies and organisations financed through public funds.
The first is where complications can arise. By appointing a second director, cover becomes a legal requirement regardless of how shares are split.
What happens if you do not have employers’ liability insurance?
You can be fined up to £2,500 for every day you trade without suitable cover, whether or not anyone has made a claim against you.
A separate fine of up to £1,000 applies if you fail to display your certificate, or refuse to produce it when an HSE inspector asks for it.
The certificate itself must be displayed at each place of business, or held electronically somewhere your employees know how to find and access. A framed copy in an office nobody visits does not satisfy it.
What does an employer’s liability insurance policy cover?
Compensation awards, legal defence costs and the associated expenses of a claim, for work-related injury and for illness.
The risk is not evenly spread. Construction workers self-report non-fatal injuries at a rate of 2.5%, compared with 2.1% in manufacturing and 1.8% across all industries (HSE). Falls from height and slips and trips together account for more than half of reported non-fatal injuries in construction.
In practice, claims tend to arrive in three shapes:
- A fall from height on site, or a slip on a walkway that was clear when the shift started.
- A manual handling injury in a warehouse or on a production line.
- Hearing loss, or a respiratory condition, diagnosed years after the exposure that caused it.
Public liability vs employers’ liability
One covers your people and the other covers everybody else.
| Employers’ liability | Public liability | |
|---|---|---|
| Who it covers | Your employees | Clients, visitors, the public, other businesses |
| Legal status | Compulsory for most UK employers | Not compulsory, but often required by contract |
| Typical limit | £10 million as standard, £5 million legal minimum | £1 million to £10 million depending on the work |
| When it responds | Injury or illness caused by the work | Third-party injury or property damage |
Most construction and manufacturing businesses need both, and a main contractor will usually ask for evidence of both before letting you on site. If you’re weighing up how liability cover sits alongside protection for your premises and stock, we cover the difference between liability insurance and property insurance separately.
What drives the cost?
Payroll and headcount first, and trade classification second.
After that, insurers look at your claims history, whether you use subcontractors, and the level of cover you want above the statutory minimum. Construction and manufacturing rate higher than low-risk office trades for the reason the HSE figures above make plain, and that’s because it’s where the injuries happen most.
Comparison sites will show you a headline monthly figure from a single insurer. A broker prices the same risk across several, and can challenge a trade classification when your operation is being rated for work you don’t actually carry out.
How to check if you’re covered
There are four checks in total:
- List every person who works for you – For anyone not on your payroll, write down why you believe they’re not an employee. The names you cannot justify are your exposure.
- Check that your declared payroll figure is current – Understating it is one of the more common routes into underinsurance, and it only shows up at claim stage.
- Read what your main contractors require – Contract terms frequently demand more than the £5 million statutory floor, and a tender can stall on it.
- Review annually – Continue this whenever you take someone on, incorporate, or appoint a director.
Final thoughts
The certificate on your wall proves you bought a policy, but it says nothing about who is on it.
The businesses that get caught out are rarely the ones with no insurance. They are the ones whose payroll and site list stopped matching two years ago, and nobody checked or updated the information. Ensuring you don’t fall foul of £2,500-a-day fines can cost just half a day of your time.
If you’re not certain who your policy covers, speak to our team about your liability cover or call 01744 886077. We will review how your business operates, not just what is written on the schedule, and tell you where the gaps are.
