Payroll

What is Payroll Insurance Coverage?

Payroll is a liability like anything else in your business and needs insurance coverage. Payroll insurance is a type of insurance that covers unexpected mistakes made during business operations – relating to payroll.

As a business owner you have many obligations to keep your employees protected, whether it be through their income, benefits, taxes, or remittances. Payroll insurance is a vast topic, and there are a few different policies that cover payroll liabilities in different scenarios.

What is Payroll Liability?

Liabilities are defined as financial obligations to another person, company, or government. Payroll liabilities refer to money owed to employees, including wages, payroll taxes, and contributions to health and retirement plans.

Here are some common examples for different types of payroll liabilities:

  • Wages, salaries, bonuses
  • Payroll taxes
  • Paid time off
  • Health and retirement plan contributions

Canadian Workers Compensation Insurance

Workers’ compensation offers an important safety net in case of injury or illness occurs on the job. A good rule of thumb? If your business is incorporated or if you have employees, you must provide workers’ compensation insurance. Benefits of this compensation cover:

  • Compensation for loss of earnings (if an injured employee is not entitled to injury-on-duty leave)
  • Medical, hospital, and related services
  • Rehabilitation services
  • A pension, if an injury results in a permanent disability; and
  • Pensions to dependants of employees who are fatally injured in the course of their employment.

Do you still have to pay other benefits while your workers are out of work? Typically, yes. Unless the employee chooses not to pay their own workers’ comp contributions during an absence, benefits like pension, health and disability benefits, and seniority of an employee still accumulate during the period of absence.

How Canadian worker compensation insurance compares to the U.S

Similar to the United States (US), workers’ compensation legislation in Canada is mandated at the provincial level. Canadian Workers’ Compensation Boards (WCB) are provincially and territorially regulated throughout the country and provide insurance for workplace injuries and illnesses. As with the US, certain industries are exempt from this required coverage such as dentistry, banking, insurance, and trust companies.

Canada differs from the US in that those industries who do require coverage can only receive workers’ compensation insurance from a WCB. The Canadian workers compensation is more of a monopolistic type of fund.

Different from the US, medical benefits are not the primary driver of workers’ compensation costs. Canada’s loss of earnings benefits/wage loss benefits are the primary driver of costs due to the publicly funded nature of the healthcare system which has:

  • Fewer administrative costs and fewer healthcare costs applied to an employer’s experience rating.
  • Minimal over-utilization of healthcare benefits when a workers’ compensation claim occurs, translating into lower overall medical costs.

Employer Liability Insurance

Employer liability insurance covers employers from financial damages if their employee incurs a job-related sickness or accident that isn’t covered by worker’s compensation. Employers who are not required to pay into their province’s worker compensation are vulnerable to the entire weight of the financial and legal fallout a work-related injury or death can cause.

The repercussions can include paying for:

  • Lost wages
  • Medical costs
  • Legal fees to defend a lawsuit
  • Awards and settlements

Employer liability insurance is coverage that can be added to a Commercial General Liability policy and is designed to protect an employer from the costs mentioned in the list above. Unlike Workers’ Compensation, employer liability is not no-fault, meaning that employer negligence has to be proven for the employer to be liable.

What is Business Interruption Insurance?

Business interruption insurance begins where property insurance leaves off. Property insurance covers the replacement or repair of your business’ damaged physical property. It takes a physical loss or damage to property to trigger the coverage. Policies vary depending on the type of event leading to a loss and what, specifically, is insured.

What the property insurance does not cover is the loss of income that you experience when bills continue to pile up while revenue and profits are on pause. Between payroll, rent, and repair costs, it’s enough to bring a business to its knees.

The best way to ensure you don’t financially suffer from a temporary closure is to have Business Interruption Insurance or Business Income Coverage (typically the two terms are used interchangeably).

Business Interruption Insurance covers loss of income resulting from scenarios such as fire, flood, windstorm etc. This includes income lost due to the temporary closing of a business facility in order to rebuild after a disaster. This considers and covers the profits that would have been earned had the business been able to remain open. By contrast, just Property Insurance covers only the physical damage done to the business.

This policy is designed to keep businesses in the same financial shape they would have been in had the disaster not occurred.

Business Interruption Insurance is especially beneficial for your payroll. If your business experiences a temporary closure, your employees will not have access to their benefits and pay during that laps in time. With Business Interruption Insurance you can cover the expenses of your entire payroll and ensure your employees receive their regular funds so they are not forced to find new work.

What is ordinary payroll?

When you buy Business Interruption Insurance you need to decide whether to insure ordinary payroll.

Ordinary payroll is the whole expense of payroll for all employees of an insured organization. The only exceptions are officers, executives, department managers, and employees who are under contract. Payroll is covered as a necessary expense in the event of a catastrophic loss under a Business Interruption policy.

In most policies, payroll costs are treated like any other cost incurred after the incident – if costs are necessary, they are reimbursed. Therefore, fundamental employees and labour costs associated with property damage repairs will be reimbursed.

But when employees are idled as a result of the incident, their payroll is not considered a necessary expense and can only be reimbursed under the Ordinary Payroll Endorsement, which goes into effect for a specified number of days (typically 30, 60 or 90 days) after the business interruption.

This kind of support could be necessary to avoid problems with union contracts. Basically, an Ordinary Payroll Endorsement is a smart investment for those businesses that have employees considered unnecessary by policy terms but that they would like to keep on staff until after the business is back up and running.

Payroll Administrator Professional Liability Insurance

It is common for businesses to have a form of General Liability Insurance. However, these types of policies don’t cover claims based on professional services or advice. Therefore, it is possible that you could be held personally responsible for any financial damages that occurred during your role as a payroll administrator.

EasyCover has Payroll Administrator Professional Liability Insurance. It is different from general liability because it covers any legal expenses in case you are sued by a client for advice or services that you may have provided.

With QuickBooks Online you have access to many different features that will simplify the payroll process and save you time. For example, the employee portal allows employees to track their vacation days, view pay stubs, and access T4/RL1 slips. We also assist you by automatically preparing your year end forms, staying on top of tax rates and more. Try QuickBooks Online today.


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