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What does employers liability insurance cover?

November 26, 2020

In simple terms, employers liability insurance is designed to pay any compensation awarded against an employer, plus any legal fees incurred in the event that an employee, or a former employee, claims compensation for a work-related illness or injury.

In most situations where a business employs people, taking out employers liability insurance is a legal requirement and provides cover for all full and part-time employees, as well as temps, apprentices, and volunteers.

However, in an industry like electrical contracting, or the wider building trade where the use of subcontractors is commonplace, the picture is slightly more complicated. Whether subcontractors are covered by a lead contractor’s employers liability cover, or must take out their own, depends on the nature of work they are subcontracted to carry out.

Subcontractor insurance explained

The bottom line is that, whether you need to take out employers liability insurance when working as a subcontractor, or which subcontractors you need to insure if you are the main contractor, depends on which of two categories insurers see those subcontractor relationships as falling within.

They are labour only subcontractors and bona fide subcontractors, and it is important the main contractor reports numbers in both categories accurately when buying business insurance. Similarly, subcontractors also need to know which category they fall into, since this will determine whether they need to put their own employers liability insurance in place.

Bona fide subcontractor versus labour only subcontractor insurance

Make no mistake, understanding which category the subcontractors you use, or your work as a subcontractor fits into is vitally important. Getting it wrong could leave you facing serious financial consequences in the event of an incident causing illness or injury to an employee or contractor on site.

For instance, if a bona fide subcontractor has no, or insufficient, employers liability cover in place, an incident could leave the main contractor liable even if the subcontractor was at fault.

With that in mind, it is vital to understand the differences between the two, and what they mean for employers liability cover.

Labour-only subcontractor definition

Labour-only subcontractors are typically those working under the direct supervision of a main contractor, using their materials, kit, equipment, and so on. Essentially, these subcontractors work as an extension of the team and are usually paid by the hour, day or week.

Labour-only subcontractors insurance

Labour-only subcontractors are treated as employees for insurance purposes and should be covered for employers liability under the main contractors’ policy. It is, however, important to understand that this does not happen automatically. The main contractor must inform their insurer, so these subcontractors are listed on its employers liability policy.

Bona fide subcontractor definition

Bona fide contractors meanwhile are usually hired to complete a specific piece of work, for instance electrical installations that fall outside of the main contractor’s competencies. They typically work under their own supervision and direction, provide their own materials, kit, equipment and tools and tend to invoice for their work, either at completion or at pre-agreed points along the way.

Bona fide subcontractors insurance

Unlike labour-only subcontractors, bona fide subcontractors must hold their own employers liability policies, covering all the employees they have on site.

Other contractor insurances

Clearly, employers liability is not the only insurance that is important for contractors and subcontractors, since accidents, incidents and mistakes can affect members of the public and clients too – and precipitate their own liability claims.

Other contractor insurance covers to consider, include:

  • Contractors public liability insurance:

    Designed to cover damage to someone else’s property or injury to a member of the public.
  • Contractors professional indemnity insurance:

    Designed to cover liability claims launched by clients alleging failures, errors or omissions in a contractor’s professional advice.
  • Contractors tools insurance:

    Providing cover for theft, loss or damage to insured tools.
  • Contractors personal accident and income protection cover:

    Helping to cover lost income in the event an accident, incident or illness leaves you temporarily unable to work.
  • Contract works insurance:

    This insurance covers work that's underway on a site, and is designed to help cover the cost of repairing or redoing work that's in progress in the event it is damaged by an insured event like fire, flood, storm, vandalism or theft.
  • Contractors plant insurance:

    Covering the cost of replacing or repairing plant and equipment affected by an insured incident like theft, fire or flood – with cover available for both owned plant and hired plant.

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