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Do sole traders need employers’ liability insurance?


Seems like a pretty dumb question, doesn't it? Why in the name of sanity would sole trader insurance ever need to cover employees? Especially considering you don't have any because you work alone?

Surely it's a no-brainer. And generally speaking, the answer to this particular dumb question is as you'd expect: 'No, sole traders don't need employer's liability insurance'.

Except that sometimes the answer might also be 'yes'. Every rule has its exceptions after all, and winging it isn't a great idea – not when there are big fines lying in wait for the unwary.

So, to start, let's recap the facts about employer's liability (EL) insurance, before looking at the relationship between EL and sole trader insurance...and identifying those occasions when a 'no' might actually be a 'yes.'

Should sole trader insurance include EL?

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.

EL insurance means the employer's liability is covered because their 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 don't have any employees and therefore don't need EL.

Or do they?

Devil in the detail 

The thing is, the Health & Safety Executive (HSE) 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, the HSE 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. So it's always 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 an EL policy than wrestle with a fine from HSE. Especially when it can be up to £2,500 for every day you were meant to have cover but didn't. Not forgetting £1,000 for not displaying the correct certificate.

The verdict

So, to sum up.

If you work alone and you never work with anyone else, you won't need to include EL cover in your sole trader insurance.

But, if you do sometimes use an extra pair of hands, just make sure you've ticked all the legal boxes you need to. Because sometimes it turns out sole traders do need employers' liability insurance after all.

Image used under license from Shutterstock.

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