In this article, we consider the cost benefit of EPLI insurance for SMEs, and explore why many do not have cover
The government currently estimates that there are 5.7 million ‘small to medium enterprises’ (SMEs) in the UK and recognises that SMEs are “the engine of growth in our economy, driving innovation and greater productivity, finding solutions” … and most importantly “creating jobs”.
This month, on 2 October 2025, the Department for Business & Trade published headline statistics which estimate that 5.64 million businesses were small with 0 – 49 employees, and that there are 38,435 medium sized businesses with 50 to 249 employees. Three different types of SMEs are recognised, the criteria for the categorisation is set out on the table below.
Government’s SME Table:
| Turnover or balance sheet total | Headcount | Business size |
| Turnover less than €50 million, or balance sheet total less than €43 million | Fewer than 250 | Medium sized |
| Turnover less than €10 million, or balance sheets total less than €10 million. | Fewer than 50 | Small |
| Turnover less than €2 million, or balance sheet total less than €2 million. | Fewer than 10 | Micro |
Despite Employment Practices Liability Insurance (EPLI) being widely available, it is still very common for law firms which offer specialist commercial employment law advice to be contacted by SMEs without any EPLI cover. Usually, the request for assistance occurs when the employer / employee relationship has broken down or in response to an employment tribunal claim. The costs of dealing with such matters usually by far exceed the cost of EPLI premiums. This situation doesn’t make sense, especially as employment law is complex, tribunal claims are increasing and most businesses (especially SMEs) can’t afford the time, expense and hassle of defending a claim, not to mention the risk of irreparable reputational harm.
Below we consider a few of the barriers which exist and may discourage SMEs from purchasing EPLI.
Trust
Many successful SMEs, especially those with less than 50 employees, rely on friends and family to become reliable mainstay employees. The risk of an employment dispute or tribunal claim is often assessed as extremely low, and a huge amount of trust exists between the employer and their employees. However, such relationships do break down and when this occurs these situations can easily become the most difficult and costly to deal with as the parties can become quickly entrenched.
Knowledge
For most SMEs HR support doesn’t exist or is very limited, and managers or business owners deal with day-to-day employee matters. Some owners of SMEs are simply unaware that it is possible to purchase insurance to protect against employment related issues and employment tribunal claims, and those who are aware often don’t understand the process. Social media platforms and the internet are flooded with information advising employees how to pursue employment related claims. For SMEs, information about purchasing EPLI is much more limited.
Lack of awareness – legal costs and value of claims
Currently, many SMEs don’t understand the potential value of employment tribunal claims, or the costs involved in defending a claim.
They may have the view that if they have HR policies and procedures in place they are protected, but that is not always the case. Even if the policies are watertight (which is rare!) and the employee is bound to lose in the employment tribunal, the risk of a claim being put in, and the cost, time and stress involved for the employer’s witnesses and managers defending it, remain. Unfortunately, as the employment tribunal process is free and there are usually no cost consequences for the losing party, speculative claims are sometimes pursued.
Suitability of insurance product
SMEs require flexibility and choice to help survive fluctuations in the business; and EPLI products are often inappropriate for them in these respects. Many businesses, especially SMEs do not want to tie themselves in to a long term EPLI contract that exists for several years and / or which automatically rolls over for a further number of years.
The way forward
The way forward is clear; greater education of SMEs is required to ensure they properly understand the merit of EPLI. Small budgets, lack of time and a professional HR team can leave SMEs vulnerable and exposed to the risk of claims and employment issues, and yet many SMEs do not consider the benefits of purchasing EPLI.
SMEs need to be provided with clear information about the level of employment tribunal awards and related legal costs, and the extent of the protection that can be purchased for a relatively small premium. They should be provided with information about the best and most suitable product available for the business and the process for purchasing insurance should be clearly explained and made as simple as possible.
Insurers can assist by providing SMEs with information about the type of claims smaller businesses are facing and demonstrating how the EPLI is value for money given the increasing levels of employment tribunal claims.
Prevention is always better than cure. Once EPLI is purchased, HR professionals, employment lawyers, business owners and managers are able to carry out a risk analysis and implement appropriate strategies. SMEs should appreciate that the purchase of EPLI is not merely an expense, it is an investment in the business.
Speak to an expert
If you’d like to learn more about how Weightmans’ can help you manage employment risk and ensure your business is protected, please speak to Suzanne Nulty or Sarah Williams. Or alternatively visit our Employment, Pensions and Immigration services page.
Employment law