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Do sole traders need employers’ liability insurance?


Do sole traders need employers' liability insurance?

The question

Do sole traders need employers' liability insurance?

Generally speaking, no.

OK, that was easy. See you next time!

Except it might also be yes. Every rule has its exceptions and bluffing it isn't a great idea – not when there are big fines ready to trip the unwary.

The law

First, a recap.

Employees' health and safety is every employer's responsibility. If a member of staff is injured or falls ill at work, and it's the employer's fault, the employee can claim against the employer for damages.

Employers' liability insurance (EL) means the employer is covered – its policy pays the legal costs of a claim, and picks up the tab for any compensation. The law says every UK business with employees has to have EL.

Now, fairly obviously, sole traders and freelancers haven't got employees and therefore don't need EL. Or do they?


The details 

HMRC doesn't differentiate between types of worker purely because of their tax status or your contractual relationship with them.

In their words:

"Whether you choose to call your contract a contract of employment or a contract for services is largely irrelevant. What matters is the real nature of your relationship with the people who work for you and the nature and degree of control that you have over the work they do." (From the Employers' Liability (Compulsory Insurance) Act 1969 - a brief guide for employers.)

In simple terms, it doesn't always matter if someone who works with/for you isn't on your payroll as a permanent employee. If it can be argued that, to all intents and purposes, you're their employer, their welfare is your responsibility.

Perhaps to make the point, HMRC uses a very broad definition of 'employee'. For example, you might be surprised to learn that all these are considered employees:

  • Temps and seasonal staff
  • Secondees
  • Volunteers
  • Work experience students
  • Freelancers and subcontractors using your equipment, in your office, under your supervision and direction

Using any one of these guys could mean you need employers' liability insurance. It's best to check where you stand and sort your insurance out before you start working with other people.

Better to spend £33 or so on a policy than wrestle with a £2,500 fine for every day you've not had cover when you should.

The verdict

So, to sum up.

If you're a freelancer or sole trader, and you never work with anyone else, you don't need EL.

But, if you do use an extra pair of hands, just make sure you've ticked all the legal boxes you need to.

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