Employee liability insurance

What it means

Employee liability insurance for damage caused to the employer is voluntary cover taken out by the employee. It pays what the employee would otherwise have to reimburse if they negligently cause damage at work, such as crashing a company car or damaging expensive equipment.

The Labour Code limits an employee’s liability. For negligent damage, compensation is generally capped at a multiple of their average monthly earnings. The cap does not apply to intentional damage, damage caused under the influence of alcohol, or shortfalls in entrusted assets under material liability.

The insurance most often concerns drivers of company cars, staff with entrusted equipment and employees handling cash or goods. Unlike the company’s own liability insurance, it protects the employee, not the employer.

How it works in practice

When setting rules for company cars we explain to clients and their staff how liability is divided. The company’s comprehensive motor insurance pays for damage to the car, but the employer may recover the excess or the higher premium from the employee within the statutory limit.

The employee pays the premium from their own income. If the employer pays it for them, it is a non-cash benefit taxed as wages and subject to contributions. For benefits we therefore point out the tax impact before the decision is made.

When an employee causes damage, the employer sets the compensation and agrees with the employee how it will be paid, often by deductions from wages under an agreement. An insured employee then claims from the insurer, which pays the employer.

What to watch out for

The insurance does not cover damage caused intentionally or under the influence of alcohol or drugs, and usually not a shortfall under material liability unless the policy expressly says so. Before taking it out, check which situations it really covers.

An employer may not unilaterally deduct compensation from wages without an agreement or without meeting the statutory conditions. Unlawful deductions breach the Labour Code, and the employee can claim them back.