Employers are required by law to have adequate Employers’ Liability insurance, but what constitutes an employee? Ron Berry, MD of Courtprice Limited, takes a look at the responsibilities of business owners and who should be considered an employee.
Apart from compulsory motor insurance, Employers’ Liability is the only class of insurance that you must take out (if you have employees), but what is an employee? If you ask most contracting firms, they will tell you that it is someone who is on PAYE and is certainly not an agency worker, a labour-only sub-contractor nor anyone self-employed.
Spot the difference
It gets more confusing as many do not know the difference between a labour-only sub-contractor and a bona fide sub-contractor. Employers’ Liability insurance states that the Insurers will indemnify the Insured (that’s the contractor policy holder) against legal liability against damages in respect of injury of any person employed caused during the period of insurance in the territorial limits, arising out of and in the course of the employment by the Insured in the business.However, it then goes on to give you the definition of what a person employed is.
An employee is any individual undertaking study or work experience while under the supervision of the Insured. Also, any labour master and individual supplied by him, any individual employed by labour-only sub-contractors, any self-employed individual not being in partnership with the Insured and any individual hired to or borrowed by the Insured while under direct control and supervision of the Insured (agency workers).
Turning to the costs of Employers’ Liability, especially in the plumbing and heating sector, it is relatively inexpensive compared to Public Liability (which of course is not a legal requirement). If a self employed contractor is thinking of taking on a trainee, the annual cost is likely to be in the region of £80 plus tax at 6% per person for the year.
Returning now to the question of agency workers, who in our opinion must be considered as employees, even if the individual is supplied through an agency and that the hire agreement states that that particular individual is self-employed. Agency workers must now have equal treatment to any employee in terms of canteen facilities, childcare facilities, etc. They must have equal treatment to anybody who is under PAYE rules.
The question of agency workers and Employers’ Liability insurance is still confusing. If however the worker is under your control, you are doing the health and safety checks for them and their risk assessments, as far as we are concerned we would recommend that they be included as employees and that the payments to these people are also disclosed to Underwriters. The old expression – ‘if in doubt, disclose it’.
Material matters
Similarly, with labour-only sub-contractors where you supply them with materials, even perhaps giving them some tools to do a specific job and directing them where to go and what to do, as far as Employers’ Liability is concerned they are employees and should be insured appropriately.
Bona fide sub-contractors on the other hand tend to be firms or other persons who are providing a service that you cannot provide yourself. For example, if you are a plumbing and heating engineer you may have someone else who does the electrics, the carpentry, someone else who does the roofing and scaffolding, all of whom would be classed as bona fide sub-contractors holding their own insurances and running their own businesses.
There is however one exception to the rules and that relates to family businesses. We are often asked by self-employed contractors what the position is if he takes his son into the business as a trainee. There is no legal requirement to hold Employers’ Liability. It is all down to individual discretion, but we would always recommend that Employers’ Liability be taken out, even in those circumstances, as the cost is so cheap and the risk of being uninsured so expensive.
Any questions?
If in doubt, please seek professional advice. This is a very complicated area. I have had cases of agency workers being employed without national insurance numbers and in one case without even a passport! Yes, an illegal immigrant. The case in question resulted in one young man being injured at work and the implications as far as the contractor and the agency were concerned is immense. If in doubt, declare it.
Ron Berry (ron@courtprice.co.uk) is Managing Director at Courtprice and CIPHE Past President. Courtprice Limited are advisers to the Chartered Institute of Plumbing and Heating Engineering and is authorised and regulated by the Financial Conduct Authority.
