What is classed as an employee for employer's liability purposes?

[J Sidoli]

Hi all... please forgive my ignorance here but I've scoured HMRC and can't quite get my head around the threshold of when a limited company requires employer's liability...

I have a limited company with two unpaid directors (it's a hobby currently, but may grow in future).... do we need employer's liability:

1. do we need it now?
2. would we need it if one of the director's invoiced the company for some (non-director) labour as a self-employed person?
3. would we need it if one of the director's went on the payroll for some PAYE monthly?

My limited and uncertain bit of understanding from HMRC is that it wouldn't need it because we couldn't personally make claims against our own company anyway?

It would only be if the company employed someone else (other than the two of us) who also isn't a family member?

 

[Frank the Insurance guy]

In simple terms, if a Ltd company has only one director and has no employees or other people doing paid (or unpaid) work for them, then they do not require Employers Liability Insurance. For everything else you must have this insurance in place.

From https://www.hse.gov.uk/pubns/hse40.pdf

"You need employers’ liability insurance unless you are exempt from the Employers’ Liability (Compulsory Insurance) Act. The following employers are exempt:*
■ most public organisations including government departments and agencies, local authorities, police authorities and nationalised industries;
■ health service bodies, including National Health Service trusts, health authorities, primary care trusts and Scottish health boards;
■ some other organisations which are financed through public funds, such as passenger transport executives and magistrates’ courts committees;
■ family businesses, ie if all of your employees are closely related to you (as husband, wife, civil partner, father, mother, grandfather, grandmother, stepfather, stepmother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother or half-sister). However, this exemption does not apply to family businesses which are incorporated as limited companies;
■ companies employing only their owner where that employee also owns 50% or more of the issued share capital in the company."

As a limited company with more than 1 director, you must hold Employers Liability Insurance.

Don't forget a limited company is an entity in its own right - a director suing the company is not suing themselves! Of course as a director, you have a duty to ensure the safety of employees (including other directors and yourself!)

Even if you have only one director of a Ltd company with no employees, you may still be required to hold Employers Liability Insurance - especially if anyone is carrying out any paid or unpaid work for you where you provide the tools and they work under your supervision and control.

 

[J Sidoli]

thanks!