Do Contractors Need Employers’ Liability Insurance?
For many UK contractors working through their own limited company, insurance is often viewed through the lens of end client contract requirements. Professional Indemnity, Public Liability and IR35 Insurance are commonly requested before a contractor is allowed on site or given access to systems. Employers’ liability insurance, however, can be less clear-cut, particularly where the contractor is the company’s only worker.
What Does Employers Liability Cover?
Employers’ Liability Insurance is designed to protect a company if an employee suffers an injury or illness as a result of the work they do for that company. In simple terms, it helps meet the cost of compensation, legal defence fees and related claims costs where the company is legally liable. Companies must obtain employers’ liability cover as soon as they become an employer, with cover of at least £5 million from an authorised insurer. Employers can be fined £2,500 for every day they are not properly insured.
But It’s Just Me In My Company
For a typical one-person contractor limited company, the position is often different. Where the company only employs its owner, and that owner holds at least 50% of the company’s issued share capital, employers’ liability insurance is generally not required. This is the common scenario for many personal service companies: one director, no staff, and the contractor owning all, or the majority, of the shares.
This distinction matters because a limited company is a separate legal entity from the individual contractor. Even if the contractor considers themselves ‘self-employed’ in everyday language, they may technically be an employee or office-holder of their own company. The law recognises a limited company exception where the only employee is also the controlling owner. In that case, there is usually no legal requirement to buy employers’ liability insurance.
When One Becomes Two
However, that changes as soon as the company takes on someone else. If the contractor’s limited company employs an administrator, junior consultant, apprentice, assistant, spouse, subcontractor treated as an employee, or any other member of staff, employers’ liability may become compulsory. HSE guidance says that if a company has employees, it will probably need employers’ liability insurance, and that employees may claim compensation if injured or made ill as a result of their work. When this happens, you need to register as an employer with HMRC. You’ll then be issued with what is know as an Employer Reference Number (ERN).
What Claims Tend To Occur?
Likely claims can vary depending on the contractor’s trade. An IT contractor might employ a junior developer who develops repetitive strain injury after months of poorly arranged workstation use. A project management contractor might hire an assistant who trips over equipment while attending a client site. An engineering contractor might employ a technician who is injured while inspecting machinery. A management consultant might have an employee who suffers stress-related illness connected to excessive workload, poor supervision or unsafe working practices.
The value of these claims can range significantly. A relatively minor workplace injury might result in a claim of a few thousand pounds for medical costs, lost earnings and legal fees. A serious back injury, long-term repetitive strain injury or psychological injury could run into tens of thousands of pounds. In more severe cases involving permanent disability, long-term loss of earnings or complex medical evidence, claims can be much higher and run into the hundreds of thousands if not millions.
Do I Really Need It?
For contractors, the risk is not only the claim itself. A failure to hold required employers’ liability insurance can create contractual, regulatory and reputational problems. A client may refuse site access, suspend a contract, or treat the absence of cover as a breach of supplier terms. Recruitment agencies and end clients often ask for evidence of employers’ liability insurance as part of onboarding, even where it may not be legally compulsory for a sole director company. This is because larger organisations tend to use standard supplier insurance requirements across all contractors, regardless of whether the contractor has employees.
A contractor who is genuinely a sole director, sole employee and majority shareholder may not need employers’ liability insurance by law. However, a contractor who employs anyone else through the company is likely to need it. The safest approach is to review the company structure, payroll arrangements, use of assistants or subcontractors, and client contract wording before deciding. Employers’ liability may not always be compulsory for a one-person contractor company, but where it is required, the financial and legal consequences of not having it can be serious.
