Protection When You Employ Your First Person
The first employee is the point at which a business stops being a job.
Until then, stopping work means stopping earning and nothing else. Afterwards there is a wage that falls due every month, a person who has given up another job to join you, and usually a commitment that feels moral as well as contractual.
That changes what the owner's protection is for, and it introduces a second question about what, if anything, to provide for the employee.
The short answer
Taking on an employee changes the business from something that supports you into something somebody else depends on. Your own cover was arranged when the only consequence of stopping was to your household; now there is a wage to pay whether or not you can work. Protection for the owner usually matters more at this point than benefits for the employee.
What this changes
- There is now a wage to pay whether or not you are able to work
- Somebody else's household depends on your business continuing
- Employers' liability insurance becomes a legal requirement, which is separate from anything here
- You may be required to enrol them into a workplace pension
- Your own income protection should contemplate the business having a fixed cost it did not have before
- Benefits you offer become part of how you keep somebody, particularly against larger employers
The bit people miss
Most small employers insure the business risk and forget what happens to the employee if the owner dies. In a business of one or two people, the owner dying usually means the business stops and the employee is out of work with no redundancy entitlement to speak of and no notice. Keyman cover gives the business enough breathing room to pay wages while something is sorted out, which is as much about the employee as about the company.
The Wage Bill Does Not Care That You Are Ill
This is the change most owners underestimate when they take somebody on.
Before the first employee, being ill meant no income and no outgoings: the business simply paused. Afterwards, the wage falls due on the same day every month regardless of whether any work was done or any invoice was raised. If you are the person who brings the work in and does most of it, a few months off means paying somebody out of money that is not arriving.
So income protection arranged before you had staff may be sized wrongly. The question is no longer what the household needs, it is what the household needs plus what the business must pay to still exist when you are better. That is a bigger number and it is worth revisiting at this point rather than later.
Small Employers Can Offer Death In Service Too
Group schemes are generally aimed at larger employers, which leaves a lot of small businesses assuming benefits are out of reach.
Relevant life cover can be arranged for individual employees, which means a business with two or three people can provide death in service without needing a group arrangement. It is normally a company expense rather than a benefit in kind, which makes it an efficient way to offer something meaningful, and for a small employer competing with bigger ones it is a genuine differentiator at modest cost.
As always the treatment depends on how the company is set up and on individual circumstances, so it is worth confirming with your accountant. The point is that the option exists at this size, which plenty of owners do not realise.
What usually fits, and why
The wage bill continues whether or not you can work, so your own cover may need to be larger than it was when only your household depended on it.
Gives the business cash to keep paying wages and meet commitments while decisions are made, rather than closing abruptly.
A way to provide death in service to an employee one person at a time, without needing a full group scheme, where the company is set up for it.
Common questions
What should I change about my own cover when I employ someone?+
Usually the amount. Income protection arranged when only your household depended on the business was sized against household costs; now the wage bill falls due every month whether or not you can work. The question becomes what the household needs plus what the business must pay to still exist when you recover, which is a bigger figure.
What happens to my employee if I die?+
In a business of one or two people, usually the business stops and they are out of work with little notice and no meaningful redundancy entitlement. Keyman insurance gives the business cash to keep paying wages and meet commitments while decisions are made, which is as much about them as about the company.
Can a small business offer death in service?+
Yes, and plenty of owners do not realise it. Relevant life cover can be arranged for individual employees rather than through a group scheme, so a business with two or three people can provide it. It is normally a company expense rather than a benefit in kind, though the treatment depends on how the company is set up and should be confirmed with your accountant.
Is this the same as employers' liability insurance?+
No, and employers' liability is the one you are legally required to have once you employ somebody. That covers claims by an employee who is injured or made ill by their work, and it is a general insurance matter rather than a protection one. What is on this page is about what happens to the business and the household if the owner cannot work.
Should I offer benefits to keep staff?+
It depends what you are competing with. A small employer up against larger ones rarely wins on salary, and death in service or income protection for an employee is a meaningful difference at a modest cost. It is worth pricing before dismissing it, because people tend to assume these things are only available to large companies.
Cover that often goes with this
The gaps we most often find sitting next to this one.
- Keyman insuranceCash for the business when the owner cannot work.
- Relevant life coverDeath in service one employee at a time.
- One-director companiesWhat applied before you took anybody on.
- Income protectionResizing it now the business has a fixed cost.
- Talk to an adviserTell us the wage bill and we will resize your cover.