The moment you hire your first employee — even part-time or on a casual basis — UK law almost always requires you to hold employers' liability insurance. Here's what it covers and why it's one of the few types of business insurance that isn't optional.
Why this cover is a legal requirement, not a choice
Under the Employers' Liability (Compulsory Insurance) Act 1969, almost every UK business with employees must hold employers' liability insurance, covering at least £5 million (in practice, most policies offer £10 million as standard). This applies from your very first employee, whether full-time, part-time, temporary or on a zero-hours contract, and covers claims if an employee is injured or becomes ill as a result of their work for you.
Failing to hold required employers' liability cover when you have employees is a criminal offence, and the Health and Safety Executive (HSE) can fine businesses up to £2,500 for every day they operate without valid cover — a penalty structure designed specifically to make non-compliance far more expensive than the insurance itself.
Who actually counts as an 'employee' for this purpose
The definition is broader than many new employers expect: anyone you pay under PAYE, casual and seasonal warehouse or packing staff taken on for busy periods like Christmas, and in many cases even some contractors and volunteers, can fall within scope depending on the degree of control you exercise over how they work. If you're unsure whether someone you're taking on counts as an employee for this purpose, check with your insurer or the HSE's own guidance before assuming a casual arrangement falls outside the requirement.
The narrow exemptions that do exist
A small number of genuine exemptions exist — most notably, sole traders and partnerships with no employees other than the owner(s) themselves, and businesses employing only a close family member who lives with them, in specific limited circumstances. These exemptions are narrower than commonly assumed, and given the daily fine for non-compliance, it's rarely worth relying on an exemption without confirming your specific situation genuinely qualifies.
What the policy actually covers
Employers' liability insurance covers compensation and legal costs if an employee is injured, becomes ill, or dies as a result of work they did for you — a warehouse worker injured lifting stock, a packer developing repetitive strain injury, or a delivery driver injured in a vehicle you own, for example. It's distinct from public liability (which covers members of the public) and from private health insurance or sick pay, which are separate, optional benefits.
Displaying your certificate and keeping records
Once you hold a policy, you're legally required to display the employers' liability insurance certificate where employees can see it, or make it available electronically in a way all staff can access — this isn't just good practice, it's a specific legal obligation, and the HSE can and does check for it during inspections. Keep copies of every historic certificate indefinitely if possible, because employees can bring a claim for an illness or injury that develops or is diagnosed many years after the exposure occurred (industrial disease claims are the classic example), and you may need to identify which insurer covered the relevant period.
Getting the right level of cover as you scale
£10 million cover, now the market standard, comfortably exceeds the £5 million legal minimum and is usually available at a modest premium for low-risk office or light warehouse work; premiums rise with the physical risk profile of the role, so a business with significant manual handling, machinery, or delivery driving in-house will typically pay more than a purely desk-based operation. Review your cover whenever your workforce or its activities change materially — moving from outsourced fulfilment to running your own warehouse with your own pickers and packers, for example, meaningfully changes your risk profile and should prompt a conversation with your insurer rather than assuming your existing policy automatically flexes to cover it.
Bundling employers' liability with your public and product liability cover through a single broker often simplifies renewal and claims administration, and many UK insurers offer modest discounts for combined policies. Whatever route you take, keep a simple internal note of your current insurer, policy number and renewal date somewhere the whole leadership team can find it — a lapsed policy discovered only after an incident is one of the most avoidable and costly mistakes a growing employer can make.
Putting This Into Practice
None of the decisions above happen in a vacuum, and it's worth thinking about how employers' liability insurance: what you need when hiring your first staff fits alongside the other choices you're making as a UK online retailer. For a closer look at this, see our guide to Shipping Insurance and Liability for Lost or Damaged Parcels.
For related reading: For the practical mechanics, see Business Insurance Essentials for UK Online Retailers: What You Actually Need and What You Don't. If you haven't already, UK Employment Law Basics for Hiring Your First Member of Staff is a useful companion read on this exact point.