Is Employer's Liability Insurance necessary to operate in the UK?


2

After doing a bit of research into sponsoring foreign workers from a UK based company, I came across something interesting; according to the UK Border Association, a small business must have employer's liability insurance coverage for a minimum of £5 million, if they employ anyone. I found that fact by digging through the required documents necessary for a license to sponsor foreign workers: found here. (The first list of documents is for Start-ups, or companies that are younger than 18 months. They say that when applying for the license, one of the mandatory documents you must have is proof of Employers Liability Insurance coverage for a minimum of £5 million, although you have to scroll down the pdf to see it.)

At first, I couldn't believe that this is true. I mean, how could a micro-ISV require that much insurance coverage for 1-2 people, or just to hire one more person? Then I read this article that said: 200,000+ businesses are breaking the law in the UK by not having ELI. My question(s) is/are:

  1. Is this truly a required (almost hidden) expense for operating in the UK, and hence a big problem that is not often publicized?
  2. At what point do you have to attain insurance? Is there a certain size you have to grow past, a certain turnover you must have? Is it OK if you're a one man operation, but as soon as someone else joins then it's a whole different ballgame?
  3. What if there are two of you, and you are both co-founding directors that started at the same time? Do you need insurance as soon as you are incorporated, or only when you hire someone new that isn't a co-founder?
  4. What is the definition of an employee? Is someone who takes equity an employee or do they have to be on salary, or both/neither?

Incorporation Insurance UK Micro Startup

asked May 13 '10 at 19:50
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Nbeecroft
515 points

2 Answers


2

even at the level of just one employee (i.e., the founder), having EL insurance is sometimes necessary because when doing work for big companies, their standard contracts require say a million pounds of EL cover, and generally also a level of public liability (PL) insurance cover.

Note that if you have any equipment at your office (even at home) then you are going to want insurance cover for that, and you can usually get a standard business insurance package which gives you cover including EL & PL for a reasonable amount each month.

Came across http://www.simplybusiness.co.uk/ which may be handy to compare quotes (although I haven't used it myself).

HTH.

answered May 14 '10 at 16:23
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Steve Wilkinson
2,744 points
  • Thanks Steve, Great answer! – Nbeecroft 9 years ago

1

I was told the same as is on Wikipedia now:

"In the United Kingdom Employers Liability Insurance is compulsory, unless the only employee is the owner of the company (who holds at least 50% of the shares)."

So yes, it's necessary if you have even one employee - and even in a one man business it's sometimes desirable.

If it's any use, the cheapest supplier I found was Hiscox - £2 million / cover for around £40 a month.

answered May 13 '10 at 22:57
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Benjamin Wootton
1,667 points
  • Thanks for the Hiscox reference! After doing some more digging I realized that it is necessary, but I thought that there was a number of employees that you have to have as sort of a tipping point (i.e. insurance is mandatory after 5 employees). I'll keep looking into it. – Nbeecroft 9 years ago

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Incorporation Insurance UK Micro Startup