Don't Get Your Liability Cover Wrong

This will affect every reader of this article in one way or another, if you're in business you should have liability cover as a minimum.

It's not the intention here to educate you on the principals of employer's liability, as you would probably find it a bit of a snore. I have tried to avoid the Employers Act where possible and will certainly avoid Tax and NI.

From an insurance point of view an employee isn't just an individual who is on your books for whom you pay Tax and NI. There are Labour Only Sub-Contractors (LOSC), Voluntary Workers (we could all do with a few of those) Work Experience Trainees and so on.

As far as your insurance is concerned you need to be providing a number of wage rolls to your insurer/broker. Each category tends to carry a different premium rating depending on risk. It therefore pays to be a little clinical when providing your estimates. Don't forget that these are estimates for the forthcoming insurance year, not the current insurance year, or what you are currently paying; I will discuss "declarations" later.

The most common ones are as follows, but if you carry out any peculiar processes to your business, such as press work, you will need to make sure that your advisor is aware of this:

• Clerical and non-manual: Self-explanatory really, clerical is office, with non-manual being workshop supervisory or project manager etc, people who don't dirty their hands.
• Manual work: This refers to manual work at your premises, manufacture, and assembly, machinists with plastics or metalwork. While on the subject of manual work it may be worth noting that insurers will be very interested in woodworking machinery and the amount of wage roll apportioned to it - woodworking risks have a higher rating due to the increased risk.
• Manual work away from your premises: as far as the sign industry is concerned, this would be the installation of signage. Be aware though that you also need to declare the wages payable for work above 10m height and usually anything below 1m depth, although it is far safer to explain the maximum height at which you or your employees work at, let your advisor then split this into categories (usually work above and below 10m).

It should be noted that in the case of limited companies, the wages/salary of Directors must be included as Directors are also employees of the company.

You should see two sections in your policy schedule: Employers Liability & public/Products Liability. We would expect to see under your Employers Section: Clerical, Manual Work, Work Away and maybe Labour Only Sub-Contractors (note that both PAYE and LOSC can be lumped together). Make sure their figures are shown and furthermore that they correspond with your projected wage rolls. Under the Public Liability section you may see similar information but have an additional item for bona fide sub-contractors assuming of course that you use them.

These are Labour Only Sub-Contractors (LOSC). The fact that they are self-employed is really irrelevant as far as your insurance is concerned, LOSC are rated as a direct employee because they are under your control. The easiest way to understand this is to look at it as a "master and servant" relationship - rather antiquated in its terminology but effectively you are the master and the employee is the servant. You direct them in what they do, they generally provide labour only and you will probably pay them on a day rate or similar. They are paid for the number of hours or days they work for you.

Its worth mentioning here that there is another category that you need to be aware of, they are not rated under the employers liability section, as technically they will be providing a service to you, these are Bona-Fide Sub-Contractors (BFSC) and you need to differentiate between these and LOSC's because if you misunderstand the differences then you could be paying a premium that doesn't really need to be paid.

What is a BFSC? These will generally be businesses in their own right, they will provide materials (other than those you provide to them), they will hire their own plant, have their own employees and insurance and will invoice you for payment, generally on a pre-agreed contract price.

BSFC's will be rated under the "Public Liability" section of your policy, either way you need to disclose payments made to BFSCs. (One final point on BFSCs, you may find an endorsement 'condition' on your policy schedule that states Bona Fide Sub-Contractors must carry the same amount of Liability cover as you do. It's no good you having £5m indemnity limit when theirs is only £2m as the contingency cover you have would not work correctly.)

Many of you reading this may have had to disclose the actual amount of wage roll and turnover for the previous year. This is very much dependant on the insurer you are with. Effectively you will have to disclose the actual wages and turnover achieved against the estimates you gave at your previous renewal, if you are with an insurer that requires retrospective figures then you may have to pay an additional premium. It's very unlikely that you would actually get any premium back if you didn't achieve your projections. There is an alternative if you have this type of policy there are many products available where you wouldn't have to pay an additional premium - it's worth discussing with your insurance advisor about alternatives. As you would expect the SignElite commercial combined policy does not have such declarations, we only ask for projected wage rolls and turnovers.

Are you a single director limited company and still have employer's liability? Did you know there is no requirement to have Employer's Liability? In recent years the law changed to state that if you are a limited company then there is no legal requirement to have in force Employers Liability where the Company has one employee and that employee owns 50 per cent or more of the shares. We still see small Ltd Companies with a sole director with this cover in force, effectively wasting premium. A document is available on our website (see below) that gives this information.

Any business that has any employees is responsible for their wellbeing while they are working, whether at your premises or on site. There is a multitude of legislation that covers this which states what the responsibilities of an employer are. Any business that has five or more employees (including directors) is required by law to have a written Health & Safety policy. Such a policy can be done in-house, although there are many Health & Safety consultants who will assist in the writing of these and all matters arising from Employment Law.

Deflecting Employers Liability claims is not easy; many of these will be seen as rich pickings by our legal colleagues due to failure of the employer to carry out their duty to the employee. A clever legal advisor will find a number of areas in which you have failed if claims arise. For instance: if an employee falls from a stepladder or a scaffold, have you provided the necessory training? Yes this may sound obvious - and it's even more obvious that everyone knows how to use such equipment - but what you should be doing is getting the employee to sign following training. We are not Health & Safety advisors, we highly recommend that you seek expert advice on this subject from a specialist, but getting your health and safety right can deflect potential claims before they have started. Even one employer's liability claim could affect the attitude of an insurer.

Don't forget you can follow the link below to go through the checklist and download forms.