21 February 2005 - New insurance rules for small companies to come into force
Companies employing only their owner will not have to buy employers’ liability compulsory insurance (ELCI) from Monday (28th Feb), when new rules come into force.
Minister for Work Jane Kennedy said: “Hundreds of thousands of limited companies, where the owner is the sole employee, will benefit from the new rules. Removing the requirement to purchase ELCI could save companies hundreds of pounds each year.”
It is estimated there are around 300,000 small companies that will be able to take advantage of the rule change, which was made following a wide-ranging consultation on whether to remove the requirement. The change was announced in October last year.
The Government is committed to supporting a package of measures that, with the support of stakeholders, will have a cumulative positive effect on the ELCI market.
Ms Kennedy said: “From Monday, many small businesses whose owners have told us they cannot afford to buy this compulsory insurance will no longer need to purchase it. This is good for businesses across the country.”
The Association of British Insurers estimates that the average saving for each company might amount to around £250 a year.
Ms Kennedy added that last year’s consultation had given everyone the chance to have their say on the insurance, with the Government listening to their views.
“The consultation sought the views of employers, insurers and their representative bodies and other stakeholders on the proposal, with nearly 80 per cent of respondents agreeing the requirement should be dropped.
“This change will bring small companies who have a single employee who owns the company into line with similar unincorporated businesses,” said Ms Kennedy.
Notes for editors
- The Department for Work and Pensions undertook to review the ELCI regulations for limited companies employing only their owner through a Partial Regulatory Impact Assessment between March and June last year.
- A summary of responses to the consultation is available on the DWP website at www.dwp.gov.uk/publications/dwp/2004/ria/elci_sum_resp_final.pdf (263KB)
- With some exceptions, the Employers’ Liability (Compulsory Insurance) Act 1969 requires employers carrying on business in the United Kingdom to insure their liability to their employees for personal injury sustained in the course of their employment in Great Britain. There is currently a penalty of up to £2,500 for failure to insure on any day.
- The legislation provides that an owner/sole employee is not required to purchase ELCI if the business remains unincorporated. However the incorporation of a business creates a separate legal person, the company, who acts as the employer and a requirement to purchase ELCI.
- The Department published its second stage and final report of the review of ELCI on 4 December 2003. In the report the Department undertook to review the ELCI regulations relating to 300,000 of the smallest limited companies where the owner is the sole employee to exempt these from employers’ liability.
- The rules come into force on Monday February 28th.
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