What is the difference between public liability insurance and employers liability insurance?

The difference between public liability insurance and employers’ liability insurance is that public liability funds compensation claims made by third parties, while employers’ liability relates to compensation claims from members of staff.

There are a few other subtle differences. Both insurance policies fund legal costs defending or mitigating against a claim, as well as any damages awarded. However, public liability insurance covers claims against damaged property as well as injury where the policy holder is to blame, but employers’ liability insurance only deals with injury, illness or death.

Employers’ liability insurance is a legal requirement for most businesses hiring a worker, although some employees are exempt. 

Public liability insurance is not a legal requirement – apart from horse riding businesses – but some industry bodies do require it to be affiliated, so businesses should check the terms of membership if they wish to be part of a regulatory organisation. 

Employers’ liability insurance definition

Employers’ liability insurance protects both the worker and the business. It provides the money needed to pay damages to employees if they become ill, injured or die as a result of working for the company. It is a legal requirement because it ensures a business always has funds to compensate an employee or their family if something goes wrong. 

The minimum limit of cover is £5 million, giving an idea of just how much an employer could have to pay if it did not have insurance. Employers’ liability insurance also covers a business’s legal expenses, and can be used to defend against unsubstantiated claims as well as genuine ones. 

Health and safety protections for employees are still of upmost importance and insurers can sue the policy holder for damages if it is found to have been negligent. 

But not all workers qualify for employers’ liability insurance. Workers may be exempt if they:

• Supply the majority of their own equipment and materials.
• Operate as a business for their personal benefit. 
• Do not have national insurance and income tax deducted by the business. However if a worker is classed as ‘self employed’ for tax purposes but is classed as an employee for other reasons the business still needs employers’ liability insurance. 
• Do not work exclusively for the business and can subcontract work out.
• Are a close family member (this exemption does not apply if the business is a limited company). 
• Are based abroad and does not spend 14 continuous days or more in Great Britain (or seven continuous days on an offshore location).

If a business is unsure if it needs employers’ liability insurance, workers qualify if the business:

• Controls the hours and location someone works.
• Deducts national insurance and income tax from money paid to the worker.
• Supplies the majority of equipment and materials to do the job. 
• Treats the worker the same as other employees – with the same working conditions for the same work. 
• Has a right to profit made.
• Bans work being subcontracted out.

There are a number of exclusions for employers’ liability insurance and while all policies differ most have a notification period that must be adhered to, with policy holders usually having seven days to tell their insurer about a claim or potential claim. 

Employees injured in a motor vehicle accident are usually not covered and a business would need to claim through commercial vehicle insurance instead. 

Businesses that admit they were at fault or make a settlement offer without consent from their insurers may also find they are not covered. Deliberate acts are usually also excluded and if the business was negligent they can be sued by the insurance provider.

The cost of employers’ liability insurance depends on the number of employees a business has and the type of industry it operates in. The cost per employee reduces as the number of employees increases. 

Research on employers’ liability insurance costs by NimbleFins found the cost of one employee is on average £213, while two cost £354 and five cost £753. NimbleFins analysed quotes across low-risk to high-risk industries of all structures to find their average costs. So smaller firms in low-risk professions may find cheaper premiums, but higher-risk occupations would pay higher premiums.

Public liability insurance definition

Public liability insurance funds compensation claims and associated legal costs if a member of the public is injured or has property damaged and the policy holder is blamed. It is not required by law, but can be required by regulatory bodies or clients. It is also not essential for every business, but if staff work in other peoples’ homes, in public, or are visited by members of the public in their place of work, public liability insurance is an appropriate safeguard. 

Businesses that have exposure to the public – whether that be customers, vendors, suppliers or just passers-by – run the risk of these people becoming injured or having belongings damaged. Examples of professions at risk of a public liability claim are:

• Electricians
• Plumbers
• Other tradespeople
• Hairdressers
• Beauty salons
• Estate agents
• Events
• Shops
• Restaurants/cafes
• Pubs/bars
• Dentists/health workers
• Window cleaners

It is only a legal requirement for horse riding businesses to hold public liability insurance, but some regulation bodies require it. The Association of Plumbing and Heating Contractors Limited (APHC) requires public liability insurance with a minimum of £2 million cover, against plumbing, heating and mechanical services. This is on top of employer’s liability insurance and professional indemnity insurance. The Electrical Contractors’ Association (ECA) also requires a minimum cover of £2 million in public liability insurance.

When considering whether to buy public liability insurance businesses should think of the risks their work carries and the cost of damage or injury to the business. 

A customer could slip on a shop floor and sue for damages, or a painter could ruin an expensive piece of artwork when decorating a house. There are all sorts of potential incidents that could occur for some trades and £6.64 million was paid out in public liability claims in 2019/20 according to the Government’s Compensation Recovery Unit.