How the Growing Self-Employment Trend Reduces the Claim “Burden” on Insurers

Neil HartleyHealth & Safety Issues/TrendsLeave a Comment

health and safety insurance

In a previous article, we explored the findings of a report that concluded that the UK insurance industry will face a reduced financial burden in the future. This reduced financial burden was due to the anticipated increase in the use of automation technologies, coupled with the growing trend for self-employment and the attendant reduction in the number of claims made against employers’ liability insurance policies.

The expected reduced financial burden from the increasing trend for workers in the UK to become self-employed is worthy of further examination. After all, ISO 45001 extends responsibility of the business to the whole supply chain…

So, how is this the case? In addition to ISO 45001 which we’ll cover later in this post, the Government states quite clearly that, under employment law, self-employed people “still have protection for their health and safety”. ACAS (the Advisory, Conciliation and Arbitration Service) agrees, saying self-employed people have “protection for their health and safety on a client’s premises”.

If this is the case, why does the insurance industry expect it will have fewer claims to pay in the future?

Self-Employed or Employed?

This all comes down to who has cover under a company’s employers’ liability insurance policy.

Any company that has employees must have employers’ liability insurance. It provides cover for members of staff who get injured or sick as a result of working for the employer. In these situations, those members of staff can make a claim against the company for compensation. Employers’ liability insurance covers the payment of that compensation as well as the legal costs of handling the claim.

Sounds straightforward, doesn’t it – anyone who is an employee has cover under employers’ liability insurance while other workers don’t.

It isn’t quite as simple as that, though, as outlined by the Health and Safety Executive. Here is the important sentence from its employers’ liability insurance guide for employers:

“It does not matter whether you usually call someone an employee or self-employed or what their tax status is.”

So, the determining factor on whether a worker should have cover under a company’s employers’ liability insurance has nothing to do with whether the company thinks they are self-employed.

It has nothing to do with who pays tax either. This is important as tax status is the most common definition of whether or not an individual is self-employed.

In other words, if the employer pays tax on behalf of the worker under the PAYE system, the worker is employed. Workers who deal with their own tax under the Self-Assessment process, on the other hand, are self-employed.

For the purposes of employers’ liability insurance, this distinction doesn’t apply.

What Types of Worker Does Employers’ Liability Insurance Cover?

So, where does the demarcation line fall between workers who do come under the requirement for employers’ liability insurance cover, and self-employed workers who don’t?

This all comes down to the nature of the work involved. The level of control the employer has over the worker is critical too.

The law says companies who use self-employed workers under the following circumstances are likely to require employers’ liability insurance cover:

  • If the company takes responsibility for deducting income tax – after all, this is likely to make the worker employed which would almost entirely remove any ambiguity
  • Situations where the company controls where the worker works, when they work, and how they work
  • Where the company provides the worker with equipment or materials to complete the work
  • Where the company takes a portion of the profits made by the self-employed worker
  • Situations where the worker must personally carry out the work, i.e. where the worker cannot employ a third-party or a sub-contractor to complete the work

What types of worker does this leave? In what situations do workers not fall under a company’s employers’ liability insurance cover?

Whenever the following conditions apply to a worker, that worker is unlikely to come under a company’s employers’ liability insurance cover:

  • Where the worker works for multiple companies
  • Where the worker provides their own materials or equipment
  • Where the worker takes all the profits they make from their business
  • Where the worker can employ a third-party or sub-contractor to complete the work

The Construction Industry

A good and well-established example of the above is in the construction industry. From an insurance perspective, self-employed workers fall into two main categories – labour-only subcontractors and bona fide subcontractors.

Labour-only subcontractors come under the direct control of the main contractor. This means they are supervised plus the main contractor supplies them with materials. In this situation, the contractor has the same health and safety responsibilities with this type of worker as it does with a directly employed worker. This means the worker comes under the contractor’s employers’ liability insurance.

Bona fide subcontractors are treated differently. To be a bona fide subcontractor, the worker must control their own work, use their own materials and tools, and have their own liability insurance. They must also understand their health and safety responsibilities.

Contractors still have responsibilities when employing the above type of worker, not least to confirm they are bona fide. However, bona fide subcontractors do not come under the main contractors’ employers’ liability insurance.

Why the Reduced Financial Burden on Insurers?

As you can see above, the law regarding self-employed workers is well-established and is reasonably clear. Why, then, are many in the insurance industry predicting a downward trend in insurance claims and payments?

To understand this, it is important to look at current self-employment trends.

According to the ONS, 3.3 million people were self-employed in 2001. That was around 12 percent of the UK workforce.

In 2017, however, that number had risen to over 15 percent with a total of 4.8 million people registered as self-employed.

The type of people who have become self-employed has changed over recent years too. In 2001, 2.4 million self-employed people worked on their own or with a partner. In other words, they didn’t have employees.

That has now risen to over 4 million workers. This means the increase in self-employment between 2001 and 2017 has been almost entirely driven by people who work on their own with no employees.

The increase in self-employment in the UK is also down to the following categories of worker:

  • Female part-time – increase of 373,000 between 2001 and 2016
  • Female full-time – increase of 299,000 between 2001 and 2016
  • Male part-time – increase of 296,000 between 2001 and 2016

The ONS also found the increase in self-employment in recent years “has been driven mainly by those who have a degree”. Almost 33 percent of self-employed people in the UK now have a degree compared to 19 percent in 2001.

What all the above figures tell us is the make-up of the self-employed workforce in the UK has changed as well as increased.

Putting This Change in Context

The Chartered Institute of Personnel and Development (CIPD) adds some context to this. It says self-employed workers were traditionally over 50, male, and worked in specific industries like construction and agriculture.

It adds this is now changing with more females becoming self-employed (as mentioned above) and more people becoming part-time self-employed (again, as above).

The CIPD also says self-employed workers now work in a much broader range of industries, plus they do a much wider range of occupations. This includes providing professional advice and personal services.

In other words, more and more people who would have been employed in the past are now self-employed in occupations and working in a way that puts them outside of employers’ liability insurance cover.

Future Trends – A Second Look

The predictions by the insurance industry of a reduced financial burden in relation to employers’ liability insurance doesn’t tell the whole story, however. This is because companies, industries, and others are increasingly looking at health and safety in a more holistic way.

Take ISO 45001 as an example. It is the new standard for occupational health and safety.

It looks at the question of health and safety across an organisation’s entire supply chain. In other words, it gives companies the responsibility to at least consider the health and safety of workers even when workers are employed by contractors outside of their control.

Of course, this doesn’t change the legal framework of employers’ liability insurance. It does, however, indicate a direction of travel that is not entirely in line with the simple equation of:

‘Increase in self-employed workers’ = ‘fewer people to cover under employers’ liability insurance and a reduced financial burden for insurers’.

This reduced financial burden might be a reality, but it may also be a reality that needs to catch up with new perspectives on health and safety responsibilities.

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