PI insurance when you hire your first fee earner (UK, 2026)
Adding a first employee changes three things at once: an Employers' Liability obligation is triggered, the professional indemnity risk profile shifts, and a duty to disclose a material change to your PI insurer arises. This guide walks through what a sole practitioner may want to consider before the start date.
Employers' Liability — the compulsory obligation
The Employers' Liability (Compulsory Insurance) Act 1969 requires almost every employer carrying on business in Great Britain to hold insurance against liability for injury or disease suffered by employees in the course of employment. The Employers' Liability (Compulsory Insurance) Regulations 1998 set the statutory minimum at £5 million per claim, and market wordings are typically issued at £10 million as the working standard.
The obligation begins the moment the employment relationship starts, which usually means the first contracted day of work rather than the offer letter or the payroll setup date. A short trial period, an unpaid observation day or a paid internship can each fall within the definition of employment for these purposes, so the safer position is to have EL cover in place before the first day, not immediately after it.
Failure to hold the cover is a criminal offence and the Health and Safety Executive can issue penalties of up to £2,500 for each day the firm is uninsured. The certificate must be made available to employees on request. Firms may also want to note the wider duties under the Health and Safety at Work etc Act 1974 and the reporting duties under RIDDOR 2013, which sit alongside the insurance requirement rather than replacing it.
PI extension to employee work
Most UK professional indemnity wordings define the “insured” to include past, present and, in some cases, future employees while acting within the scope of the firm's business. That extension is what makes it possible for one policy to respond to work done by a junior solicitor, a trainee accountant, a technician or a junior architect, even though only the principal signed the proposal.
The extension is not automatic in every wording. A minority of policies limit cover to work signed off by a named principal, or exclude the acts of unqualified staff unless supervision is documented. Some policies distinguish between employees and independent contractors, with the latter treated as third parties for the purposes of the insured-versus-insured exclusion. Reading the definitions section before the hire, rather than at first notification, avoids an unwelcome discovery mid-claim.
Where the employee is a trainee or a paralegal working under supervision, the wording may require the supervising principal to hold a stated post-qualification experience level. Where the employee is a fully qualified fee earner, the policy may treat their work identically to the principal's. The premium rating usually reflects that distinction, which is one reason insurers want to know the fee-earner count and the qualification mix.
Wage-roll and fee-earner-count disclosure
Professional indemnity policies are almost always rated on two variables: gross fee income for the coming twelve months and the number of fee earners generating it. Employers' Liability policies use a different base — wage roll — and rate on the estimated annual wages, salaries and other earnings of the insured's employees.
At renewal, both figures need to be revised. The proposal form typically asks for actual fee income and wage roll for the closing year and estimates for the year ahead. A single hire can move both numbers, and an under-declaration may trigger the average clause in an EL policy or a proportional adjustment on the PI policy. The Insurance Act 2015 treats a materially inaccurate declaration as a potential breach of the duty of fair presentation.
Between renewals, most insurers accept a mid-term declaration. The additional premium is usually calculated pro-rata to the unexpired policy period. Firms may want to ask their broker how the insurer will treat a hire that increases the fee-earner count by 100 per cent (from one to two), because some rating tables step by band rather than smoothly, and the second head can carry a proportionately larger premium loading than the third or fourth.
Insurer notification of material change
The duty of fair presentation under the Insurance Act 2015 applies at inception, at renewal, and on any variation of the risk. Taking on a first employee is generally treated as a variation because it changes the nature of the practice from a genuine one-person operation to a firm with delegated work. Most brokers therefore notify the PI insurer in writing before the start date and confirm any changes to premium, terms or limits in writing.
The notification usually covers the hire date, the role and grade, the qualification held, the anticipated area of work, the supervising principal and any anticipated shift in the client mix. Where the firm is FCA-authorised in its own right — for example a directly authorised financial adviser hiring a paraplanner — SUP 15 may require a separate notification to the FCA under the material-significance test, and internal breach registers should record the change even where the threshold for reporting is not met.
Where the hire follows a change of trading style, a new practice area or the acquisition of a client book, the notification should record those facts too. Insurers may respond by adjusting the retroactive date, by asking for run-off arrangements on prior work, or by requesting sight of the supervising principal's CV.
Supervision, competence and PI conditions
PI policies for regulated professions almost always carry a supervision or competence condition. For solicitors in England and Wales, this sits alongside the SRA Code of Conduct for Firms Rule 4, which requires effective governance and supervision arrangements. For accountants, architects, surveyors, engineers and IT consultants the wording differs, but the substance is similar: unqualified or partly qualified staff must be supervised by someone competent to review their work.
Supervision under a PI condition is generally interpreted as active review of technical output, not simply line-management or performance appraisal. A trainee solicitor's draft advice, a paralegal's due-diligence note, a technician's structural calculation and a junior architect's specification are typical examples of work that a policy will expect to have been reviewed and signed off by a principal before it left the office.
Firms may want to document the supervision policy in writing before the first hire, and to keep contemporaneous evidence — email approvals, review sheets, workflow-tool timestamps — that the review actually happened. Where a claim is later brought against the junior's work, the insurer will typically ask for the supervision file as part of the claims investigation, and its absence can affect the way indemnity is granted.
PAYE, IR35 and PI overlap
The tax treatment of a first hire sits alongside the insurance picture. PAYE and National Insurance obligations begin as soon as an employment relationship is formed, and HMRC's registration requirements need to be met before the first pay date. Where the intention is instead to engage the person as a self-employed contractor, the IR35 rules under the Finance Act 2000 and, since 2020, the off-payroll working rules in the Finance Act 2020 need to be considered.
The status a firm gives the contract is not the same as the status HMRC or an employment tribunal will assign. Control, mutuality of obligation, personal service and the right of substitution are the tests that count. A junior fee earner working set hours in the firm's office, using the firm's files and reporting to the principal, is unlikely to satisfy any credible self-employment test regardless of what the paperwork says.
The insurance overlap is that Employers' Liability may still be triggered even where the person is paid gross under a consultancy agreement, and PI cover may not extend to their acts unless the definition of “insured” specifically includes contractors. Firms may want to raise both points with their broker and their accountant before the first invoice, and to keep the commission-disclosure position in mind where ICOBS 4.4 applies on commercial requests.
The month-one practical checklist
The first month after a hire is when most of the insurance paperwork can go wrong. A short internal checklist may help. Put EL cover in place before the start date and pin the certificate somewhere accessible. Send a written notification to the PI insurer, ideally through the broker, and keep the acknowledgement on file. Update the payroll and register with HMRC. Confirm the supervising principal in writing to the new employee and to the file.
Revisit the PI proposal form. Update the fee-earner count, the estimated fee income and any changes to the practice area. Record the supervision policy and the review workflow. Where the firm carries cyber cover or management liability, tell those insurers too. Diarise the first anniversary of the hire, and the next PI renewal, so the wage roll and fee-earner count can be reconciled with actuals rather than estimates.
Common pitfalls and red flags
- Assuming EL is triggered only on payment of the first salary — unpaid trial days and work-experience placements can fall inside the statutory definition.
- Treating a hire as a renewal-only disclosure item — most insurers expect written notice of a material change before the start date, not months later.
- Leaving the fee-earner count unchanged on the next renewal proposal — a rating variable that stays at one when the head-count is two is a fair-presentation issue.
- Documenting the arrangement as a self-employed contract to save PAYE — IR35 and tribunal tests look at the reality, not the label.
- Assuming a standard PI wording extends to unqualified staff — some wordings require a named supervisor with a stated post-qualification level.
- Skipping the written supervision policy — insurers ask for supervision evidence during a claim and its absence can affect indemnity.
- Forgetting the EL certificate display and retention duties under the 1998 Regulations, which apply from day one.
- Overlooking RIDDOR, HSE and workplace risk-assessment obligations that come alongside the insurance requirement.
Frequently asked questions
Do I need Employers' Liability from the first day I hire?
In most cases, yes. The Employers' Liability (Compulsory Insurance) Act 1969 requires cover to be in force from the moment an employer-employee relationship starts, with a statutory minimum of £5 million. Most insurers issue policies at £10 million as market standard.
Does my PI already cover an employee's work?
Most professional indemnity policies define the insured to include past and present employees acting in the course of the business, but only once the insurer has been told about the hire and, where relevant, the fee-earner count has been updated. Read the definitions section before you assume you are covered.
When must I tell my PI insurer about the hire?
The Insurance Act 2015 requires a fair presentation at inception, renewal and on any variation. A first hire is typically treated as a material change, so most brokers notify the insurer in writing before the start date rather than waiting for renewal.
Will hiring increase my PI premium?
It may. PI premiums are usually rated on fee income and the number of fee earners, so adding a chargeable head can shift the rating. Trainees and paralegals often attract a lower rating than fully qualified fee earners. The final position depends on the insurer's rating table and remuneration is disclosed in line with ICOBS 4.4 on request.
What if I contract them as a self-employed associate?
The status you give the contract is not the same as the status HMRC or a tribunal will assign. IR35 and employment-status tests look at control, substitution and mutuality of obligation. If the worker is treated as employed for tax or for practical purposes, Employers' Liability may still be triggered.
Do I need to add them to the PI policy by name?
Usually not. Standard PI wordings extend cover to employees generically. Named-individual endorsements are more common on higher-limit or Lloyd's placements, and for principals or partners rather than junior staff.
What about volunteers, work-experience students or interns?
Employers' Liability is generally read broadly to include unpaid workers, students on placement and volunteers where the firm exercises control over their work. It is safer to tell the insurer than to assume they fall outside the definition of employee.
Does my supervisor status affect the PI premium?
It can. Insurers usually ask about the qualifications and post-qualification experience of the supervising principal, particularly where trainees or unqualified staff are being taken on. A clear supervision structure documented in the proposal can support the underwriting case.
Hiring soon and unsure what needs to move first?
Talk to a named broker about EL cover, the PI notification and the wage-roll disclosure before your first employee's start date.
Start a proposal Call 0117 325 0027Offices: QCS, 53 Queen Charlotte Street, Bristol BS1 4HQ · Unit 24, Basepoint Centre, Jubilee Close, Weymouth DT4 7BS