Does a family business need employers' liability insurance?

Safety and insurance

2 February 2018

Fortune favours the brave, but bravery and recklessness are two different things. When you’re making bold decisions to grow your family business, you need to have a fail-safe in place.

And if you’re employing staff for the first time, regardless of whether they’re family or not, it’s worth exploring your options when it comes to employers’ liability insurance.

Let us help explain why.

Do I need employer’s liability insurance for family members?

In short, no. If you employ an immediate family member, the law doesn’t require you to have employer’s liability insurance.

But that doesn’t necessarily mean you shouldn’t have it. Let’s take a look at why employer’s liability insurance might still be a good idea for your family business.

The law

According to UK law, every business employing staff to work in the UK needs to have employers’ liability insurance. It must cover you for at least £5 million (AXA's policy covers £10 million as standard), and come from an authorised insurer. If you’re concerned about your provider, you can check their credentials on the Financial Conduct Authority (FCA) register.

This law covers all employees with an expressed or implied contract, including oral contracts. So even if the paperwork’s not there, you still need to be insured if people are working for you. There is, however, one clear exception: if the employee is part of your immediate family. Whether it’s your partner by marriage or civil partnership, a member of your immediate family ranging from grandparents to grandchildren (including step-children and half siblings), you are exempt. This exemption does not apply to incorporated, limited companies.

Protecting your family

Families are the lifeblood of many UK businesses, providing as much as £7.2 billion in money and loans and priceless levels of personal and professional support to loved ones starting or growing their company. While you may not be legally required to have employers’ liability insurance when you employ them, we know how important family can be, and you can help protect your loved ones by ensuring they’re covered. When you have insurance, if anything happens while a family member is on the job they could receive compensation for their injuries.

Protecting your business

If your business is growing, even if it’s just within the family, it is wise to consider protecting it with insurance. Having insurance in place not only offers security to the family members or other staff you employ, it can protect you against compensation and legal costs you may be liable for. What’s more, if you don't have a suitable policy you’ll be breaking the law.

If you do hire employees without the right policy in place, you’re putting your business in real financial risk. For every day you don't have insurance, you can be fined up to £2,500. Simply failing to have your insurance certificate accessible to staff or being unable to show it to an inspector when asked can result in a £1,000 fine. By removing this risk, you’re protecting your legacy as well as your team and your family.

More helpful information for family businesses

Partnership agreements for families

Many family-owned businesses have existing long-term partners without a formal partnership agreement. This leaves businesses in a vulnerable position because those involved don’t have designated roles with clear expectations. As a result, small disagreements over how the business is run can easily lead to costly legal disputes.

Business insurance

Employer’s liability isn’t the only insurance you should consider. The type of cover you’ll need will depend on the type of family business you run. For example, if you have business premises like a shop or an office, you might need business contents insurance. Not sure whether your family enterprise needs insurance or what type? Complete our Business Insurance Wizard to find out

Family members’ salary

When paying family members, it’s important to make sure the amount they’re paid reflects the work they do. If their salary is excessive compared to their responsibilities, this can irritate other employees; especially non-family members. You can also fall foul of HMRC rules if wages are excessive. Equally, it’s not fair to under pay your family members just to try and make some savings. Not sure whether your family enterprise needs insurance or what type? A good way to check you’re being fair is to ask yourself whether a person who was not a family member would be paid the same rate.