The Employers� Liability (Compulsory Insurance) Act 1969 requires all employers, unless they are exempt, to have at least �5 million of employers� liability insurance with an approved insurer to protect them against claims from employees for accidents or sickness caused through work. In practice, most insurers offer at least �10 million cover.

The law was amended with effect from 28 February 2005 to exempt very small companies that employ only their owner (see the Employers� Liability (Compulsory Insurance) (Amendment) Regulations 2004, SI 2004/2882). In a letter to PCG, the Department of Work and Pensions confirmed that if a limited company employs only the owner, and that owner owns more than 50 per cent of the issued share capital, then the company is exempt.

As a freelance consultant or contractor operating outside IR35, however, you are likely to have a substitution clause in your contracts. Without employers� liability insurance, you cannot fulfil this clause without breaking the law, so in practice you ought to have cover.
There are no hard and fast rules about who counts as your employee for the purposes of employers� liability insurance. People who you may think of as self-employed may be considered as your employees for the purposes of employers� liability insurance; what matters is the real relationship with the people who work for you and the degree of control you have over the work they do for you. Even part-time and casual staff may count as your employees.

The law is enforced by the Health and Safety Executive (HSE); its inspectors can ask to see your certificate of insurance at any time. These must be retained for at least 40 years after the insurance has expired. You can be fined up to �2,500 for any day which you are without suitable insurance. If you do not display the certificate of insurance or refuse to show it to HSE inspectors when they ask, you can be fined �1,000. The Financial Services Authority keeps a register of authorised insurers, which is available on its website.

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