If you have employees, payroll might be your largest expense. You may consider getting certain types of payroll insurance to protect payroll-related operations—and your business bottom line.
Payroll insurance isn’t a single policy. When you call an insurance provider and say, “I’d like some payroll insurance,” you’ll get recommendations for different types.
What kind of payroll insurance do you need to protect your business? Are any types of payroll insurance required? Find out below.
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What is payroll insurance?
Payroll insurance includes insurance types related to payroll. Obtaining insurance for aspects of payroll can protect your business from expenses linked to mistakes, injuries, temporary shutdowns, fraud, and lawsuits.
So, should you get payroll insurance? Because payroll is one of your biggest liabilities, or expenses, in business, getting coverage is a good idea.
Payroll liabilities include:
- Employee wages
- Payroll taxes
- Payroll services fees
- Benefits contributions (e.g., retirement)
Although there isn’t a standard “payroll insurance,” you have options. What type(s) of payroll insurance do you need?
Types of payroll insurance
You might consider investing in several types of payroll insurance to protect your business from payroll-related or employee-related expenses, including:
- Errors and omissions insurance
- Workers’ compensation insurance
- Employment practices liability insurance
- Business interruption insurance
- Commercial crime insurance
Do you use payroll services to manage payroll? Find out if they have a tax filing reliability guarantee covering costs if they make a mistake.
1. Errors and omissions insurance
Errors and omissions (E&O), or professional liability, insurance protects your business from costs associated with mistakes.
You can use E&O insurance to cover payroll mistakes (e.g., miscalculations), along with general business errors. E&O insurance can help you pay legal costs, financial liabilities, or penalties.
2. Workers’ compensation insurance
Workers’ compensation is a payroll insurance that provides medical benefits and wage replacement for employees who suffer a job-related illness or injury.
Examples of job-related illness or injury include chronic back problems, hearing loss, and lung disease.
Obtaining workers’ comp insurance is mandatory in nearly all states. Some states only require it when you reach a certain number of employees (e.g., three).
In most states, you can shop for workers’ compensation insurance through a provider. However, North Dakota, Ohio, Washington, and Wyoming are “monopolistic states” that require employers to purchase insurance from the state.
Unless your business is in a monopolistic state, your workers’ compensation insurance typically includes employer’s liability insurance.
Employer’s liability insurance protects your business from expenses related to a job-related injury or illness not covered by workers’ comp (i.e., a lawsuit). You’ll need to obtain a standalone policy if you’re in a monopolistic state and want employer’s liability insurance.
3. Employment practices liability insurance
Employment practices liability insurance (EPLI) protects businesses against certain employment-related claims.
EPLI covers your business from claims like:
- Wrongful termination
- Workplace harassment
- Discrimination
- Unfair demotion
Obtaining EPLI helps you cover legal defense costs. You can purchase EPLI as a standalone policy or as part of a general liability insurance.
4. Business interruption insurance
Business interruption insurance protects your business if you need to temporarily close due to a covered event (e.g., natural disaster).
The insurance helps you pay for ongoing expenses, including:
- Payroll
- Mortgage or lease payments
- Taxes
- Business loan payments
Business interruption insurance helps ensure you don’t miss paying your employees or need to take out a payroll loan during an emergency.
5. Commercial crime insurance
Commercial crime insurance can help protect your business against payroll fraud and other types of employee theft.
Fidelity and crime insurance can cover your business from losses related to crime, such as:
- Employee theft
- Forgery of checks
- Funds transfer fraud
How much is payroll insurance coverage?
Payroll insurance pricing depends on several factors, including the type of insurance you need, as well as your business size, industry, and location.
Check out the following chart to get a feel for average monthly premium costs by payroll-related insurance type:
| Insurance | Average Monthly Premiums |
|---|---|
| Errors and Omissions Insurance | $62 |
| Workers’ Compensation Insurance | $81 |
| Employment Practices Liability Insurance | $222 |
| Commercial Crime Insurance | $54.17 – $208.33 |
| Business Interruption Insurance | $40 – $130 |
Other business insurance you may need
There are several insurance policies you may need when you run a small business.
Other types of business insurance include:
- General liability: Protects against property damage, bodily injury, or personal injury claims caused by operations.
- Cyber: Helps your business deal with cyberattacks and hacking threats.
- Commercial property: Protects your business’s tangible (physical) assets, such as your building, from losses.
- Commercial auto: Covers vehicles used to run your business.
- Home-based business: Covers business losses that occur in your home.
Look into insurance options and speak with insurance providers to see what policies are right for your business.
Looking for reliable payroll with free workers’ comp integration? Sign up for Patriot’s payroll software and enjoy free pay-as-you-go workers’ comp integration with NEXT Insurance. You can choose between multiple carriers and automatically pay your premium each payroll!
This is not intended as legal advice; for more information, please click here.
