Contractors' Questions: Do umbrella companies have to offer insurance?

Contractor’s Question: I plan to move towards contracting away from permanent employment and so, am interested in umbrella companies. But what about the insurances they hopefully provide? Are brollies legally required to provide Professional Indemnity, Public Liability or Employer’s Liability insurance? Or are these just a bonus -- an add-on?

Expert’s Answer: A bona fide umbrella company (one which employs workers and operates PAYE on their earnings), is essentially no different to any other employer with regards to their responsibilities and obligations.

Umbrella companies are legally required to hold Employer’s Liability insurance in order to protect their employees if they become ill or are injured while carrying out their work. Large fines are in place if an employer does not have an appropriate Employer’s Liability policy, so when an umbrella company advertises that it provides its workers with Employer’s Liability cover, in reality this is of benefit to the umbrella as much as it is to the individual employees covered by the policy.

Public Liability insurance is not required by law, but if members of the public come into contact with an umbrella company’s employees at the place of work (the client site), then it is worthwhile cover to have in place. Since an umbrella company employee will most likely not be covered by the Public Liability insurance that the client has in place for its own permanent employees, it is possible that the umbrella worker will be required to be covered by Public Liability insurance as a contractual requirement, even though it is not a legal requirement.

Professional Indemnity insurance cover gives businesses protection against claims for damage caused by professional incompetence or negligence. Professional Indemnity cover is not a legal requirement, but it will almost certainly be a contractual requirement since having this insurance in place gives the client the protection of being able to claim against the insurance should the umbrella company employee (the contractor), cause the client any damage or harm.

The expert was Marc Scott, a director of umbrella company Liberty Bishop.