25% of SMEs have no idea they’re breaking the law

Not being able to understand legal obligations as an employer or business owner is leaving some SMEs in danger of breaking the law.

Employers’ liability insurance is a legal necessity for the vast majority of businesses with staff, however one in ten (11%) SMEs thought it wasn’t a legal requirement in any scenario.

A quarter (25%) of SMEs also wrongly believe that employers’ liability insurance is only legally required once a business has more than one employee.

Employers’ liability provides vital cover should a member of staff make a claim for illness or injury caused by their job and it is a legal requirement. Failure to have it carries the risk of fines of £2,500 for every day the business is not properly insured.

Almost nine in ten (87%) SMEs did not know that the minimum legal requirement for employers’ liability insurance is £5 million, with a fifth (19%) believing the minimum legal cover to be less than £500,000.

And it isn’t only employers’ liability insurance that some businesses are unsure of. When we asked about all types of business insurance less than a third (29%) of SMEs said they are very confident that they have the right cover, and one in ten (12%) admitted to having no business insurance at all. That is potentially leaving more than 600,000* SMEs financially vulnerable should a claim arise.

However, it seems that the longer they are in business the higher the priority for insurance becomes. A quarter (25%) of SMEs that have been in business for less than a year have no insurance but this fell to 5% for more established businesses that have been operating for 8-10 years.

Angus Eaton, managing director of commercial lines at Aviva explained, “Clearly SMEs need a strong understanding of their legal obligations and how they can protect their business and employees to keep it trading – one claim without adequate cover could easily be enough to put severe financial pressure on an organisation or even close it down completely.”

“It seems from our survey that the longer they are in business the more likely SMEs are to have taken out business insurance and my advice would be, don’t wait – make sure you have the right insurance from the start. Making the time to get the right advice and protection for your business could be the best investment you make so if you don’t already have one speak to your local broker as soon as you can.”

For more information contact Aviva

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*According to Government statistics, there were 5,163,600 SMEs at the start of 2014 in the UK