Sole traders will no longer be required to pay employers’ liability compulsory insurance (ELCI) by the end of the month.

From 28th February a change in the law will see business owners without any employees become exempt from ELCI, affecting around 300,000 sole traders in the UK.

Many micro businesses will see the change as a welcome and common sense approach to the issue.

ELCI enables businesses to meet the cost of compensation and legal fees for employees who are injured or made ill at work through the fault of the employer.

Currently all employers must have ELCI and be insured for at least £5 million.

Rachel Cotton, manager of financial service More Than Business, said: “The amendment to the law makes a lot more sense to very small companies, as it is legally impossible for a business owner, who is the only employee, to sue themselves.”

However, More Than are urging owners to be aware that ELCI may still be required in certain circumstances such as hiring temporary staff during busy periods, having work carried out by self employed individuals and receiving help from non-paid volunteers or work experience students.

More Than claim that failure to meet such requirements could land owners with a fine of £2,500 per day.

Cotton said: “Many might not be aware that there are certain situations where taking out ELCI is still the only option, a legal requirement in fact."

For many business experts the changes don't go far enough and they are urging the government to consider small employers.

David Frost, director general of the British Chambers of Commerce (BCC), said: "We welcome the removal of this onerous and unnecessary regulation. However, this move will do little to benefit the majority of small companies, many of whom are still suffering from the rising costs of ELCI." 

A BCC 2004 survey revealed that one-third of businesses had experienced an increase of between 20 and 50 per cent in the cost of their premium in the past 12 months.

Frost said: "The government has recognised that ELCI increases are placing a heavy burden on firms. However, the Department for Health's proposal to recover NHS costs from insurers in personal injury cases will serve to push up the cost of the average firms' premium by over 5 per cent."