UK Employers' Liability Insurance: Who Is Exempt, and the One-Director Rule

Quick Answer: Do You Need Employers' Liability Insurance?

If your business has employees in Great Britain, almost certainly yes. The Employers' Liability (Compulsory Insurance) Act 1969 requires every employer carrying on business in Great Britain to insure against claims from employees injured or made ill at work, with cover of at least £5 million for any one occurrence. Being uninsured is an offence "on any day" it happens, and HSE puts the fine at up to £2,500 for every day.

The exemptions are narrower than most people expect, and the one that matters most to small companies is not in the Act at all.

---

What the Law Requires

The duty

Section 1(1) of the 1969 Act says that "every employer carrying on any business in Great Britain shall insure, and maintain insurance" against liability for bodily injury or disease sustained by employees arising out of their employment. The policy must come from an authorised insurer.

It is the nearest British counterpart to US workers’ compensation, with one structural difference: employers' liability is liability insurance, so it pays when the employer is legally liable for the injury or illness, not regardless of fault.

The £5 million minimum

Regulation 3 of the Employers' Liability (Compulsory Insurance) Regulations 1998 sets the floor. Cover must be "not less than £5 million" for a claim relating to one or more employees "arising out of any one occurrence", and that figure includes costs and expenses. A parent company and its subsidiaries may be insured as if they were a single employer. HSE notes that most insurers offer at least £10 million.

Who counts as an employee

Section 2(1) defines an employee as an individual who works "under a contract of service or apprenticeship with an employer", whether the contract is written, oral or implied.

HSE's guidance adds that the label does not decide it: "It does not matter whether you usually call someone an employee or self-employed or what their tax status is." What matters is the "real nature of your relationship" and the degree of control, for example who sets the hours, supplies the materials, and whether the worker can send a substitute.

---

The Exemptions, One by One

Sole traders with no staff

A sole trader who employs nobody has no one to insure against. The duty starts with the first employee, including part-time and casual staff.

Close family members (unincorporated businesses only)

Section 2(2)(a) removes the duty for an employee who is the employer's "husband, wife, civil partner, father, mother, grandfather, grandmother, step-father, step-mother, son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, half-brother or half-sister."

The catch is that a limited company is a separate legal person and has no relatives. HSE's guidance states that the family exemption "does not apply to family businesses which are incorporated as limited companies."

The one-employee company exemption

The exemption most single-director companies rely on is paragraph 15 of Schedule 2 to the 1998 Regulations. It was inserted by SI 2004/2882 with effect from 28 February 2005, and covers:

"Any employer which is a company that has only one employee and that employee also owns fifty per cent or more of the issued share capital in that company."

Two features make it easy to misread:

• It is not visible in the obvious places. GOV.UK's employers' liability page lists only the family and based-abroad exemptions. On legislation.gov.uk, Schedule 2 is shown in its original 1998 form, which ends at paragraph 14. The exemption sits in the 2004 amending instrument.
• It requires exactly one employee. A company with a second employee falls outside it, even if that person is a spouse, even if both are directors, and even if they own all the shares between them.

Two directors: the open question

Whether a two-director company needs cover depends on whether the directors are employees in the section 2(1) sense, meaning they work under a contract of service. A director who holds office without an employment contract may fall outside the definition. Neither the Act, the Regulations nor HSE's guidance settles this for every case, which is why insurers and accountants give different answers. The deciding document is the director's own service arrangement.

Volunteers, students and work experience

The Act does not mention volunteers. HSE's guidance says that "in some cases you will not need additional employers' liability insurance" for volunteers, unpaid students, trainees or work-experience pupils, and that an organisation with no employers' liability cover should "talk to your insurer before taking on any of the above."

Staff based abroad

Employees "not ordinarily resident in Great Britain" are outside the Act unless regulations bring them in (s. 2(2)(b)). HSE's guidance says cover is needed for abroad-based staff who are in Great Britain for more than 14 days continuously, or more than seven days on an offshore installation.

Public bodies

Most public authorities are exempt under section 3. The only change to the Act in 2026 was a local-government reorganisation order (SI 2026/1011) affecting that public-sector exemption. Nothing changed for private employers.

---

Penalties

Section 5 also makes directors, managers and company secretaries personally liable where the company's offence happened with their "consent or connivance" or was "attributable to any neglect" on their part. For a small company, the person deciding whether the exemption applies is usually the person exposed if it does not.

---

Certificates and Record-Keeping

Since 1 October 2008 (SI 2008/1765), the certificate can be "made available in electronic form" instead of being displayed on paper, provided employees can reasonably access it.

The same instrument removed the old rule that "required an employer to retain a copy of its employer liability insurance certificate for 40 years." There is no longer a statutory retention period. Industrial disease claims can surface decades after the exposure, which is why many employers still keep old certificates; that is a practical decision, not a legal duty.

---

Northern Ireland Is Separate

The 1969 Act extends to England, Wales and Scotland. Northern Ireland has its own Order and Regulations. The NI version of the one-employee company exemption, in SR 2005/2, uses the same 50%-shareholding test and came into operation on the same date, 28 February 2005. NI penalty amounts and certificate rules come from the NI instruments and are not covered in this guide.

---

FAQ

Do I need employers' liability insurance as a sole trader?

Not if you employ nobody. Once you take on an employee, including part-time or casual staff, the duty applies, unless the employee is a close family member listed in section 2(2)(a) of the Act.

Does a limited company with one director need employers' liability insurance?

Not if that director is the company's only employee and owns 50% or more of the issued shares. That exemption is in paragraph 15 of Schedule 2 to the 1998 Regulations, added in 2005.

Does a company with two directors need employers' liability insurance?

The one-employee exemption does not apply if both directors are employees. Whether a director is an employee depends on whether they work under a contract of service, so the answer turns on each director's arrangements.

Does the family exemption cover a husband-and-wife limited company?

No. HSE states that the family exemption does not apply to family businesses incorporated as limited companies.

How much employers' liability insurance is legally required?

At least £5 million for any one occurrence, including costs and expenses, under regulation 3 of the 1998 Regulations. Many insurers sell £10 million as standard.

Do I need employers' liability insurance for volunteers?

The Act applies to employees, so volunteers are not automatically included. HSE says existing cover may extend to them in some cases, and an employer with no cover should check with an insurer before taking volunteers on.

Do I need employers' liability insurance for subcontractors?

It depends on control, not the label. HSE says it does not matter whether a worker is called self-employed; if you control how, when and where they work and supply their materials, they may count as an employee.

What is the fine for not having employers' liability insurance?

Up to £2,500 for every day without proper cover, and up to £1,000 for failing to display or produce the certificate. Directors can be personally liable.

---

Key Takeaways

• Employers in Great Britain must hold at least £5 million of employers' liability cover, including costs.
• The one-director exemption is in Schedule 2 paragraph 15, added in 2005, and applies only to a company with one employee owning 50%+ of the shares.
• A second employee ends the exemption, even a spouse; the family exemption does not reach limited companies.
• Being uninsured is an offence for every day, with fines up to £2,500 a day, and directors can be personally liable.
• Certificates may be electronic since 2008, and the 40-year retention rule no longer exists.

---

Sources

• Employers' Liability (Compulsory Insurance) Act 1969, ss. 1–5 — legislation.gov.uk
• Employers' Liability (Compulsory Insurance) Regulations 1998 (SI 1998/2573), reg. 3 and Sch. 2
• Employers' Liability (Compulsory Insurance) (Amendment) Regulations 2004 (SI 2004/2882), inserting Sch. 2 para 15
• Employers' Liability (Compulsory Insurance) (Amendment) Regulations 2008 (SI 2008/1765)
• Statutory Rule 2005/2 (Northern Ireland)
• Health and Safety Executive — Employers' Liability (Compulsory Insurance) Act 1969: A brief guide for employers (HSE40)
• GOV.UK — Employers' liability insurance

Last verified: 2026-10

---

Important Disclaimer

This guide provides general information about insurance requirements based on publicly available sources as of the "Last verified" date above. It is not legal, insurance, or financial advice. Requirements, penalties, and statutes can change; individual circumstances vary. Always confirm current rules with your state's Department of Insurance or DMV, and consult a licensed insurance professional for advice specific to your situation.