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What is payroll insurance coverage?

As a business owner, you face a number of liabilities. Liabilities can be a major source of lost income, and they could potentially put your business in a difficult financial situation. This is why many businesses opt to invest in different forms of liability insurance.

Liability insurance is built to protect businesses from commercial property damage, theft, data breaches, and employee injury. And it can even include payroll insurance. Having good insurance can help protect you in case paying for a mishap means you can’t cover payroll liabilities—the money you must keep on hand for payroll expenses.

What does business insurance include? Business insurance—including payroll insurance—is a broad and complex topic that encompasses a lot of different aspects. In this post, we’ll cover these topics:

What is payroll liability?

Liabilities are sources of expenses for businesses. Payroll liabilities include the various expenses that businesses encounter when covering payroll. While the actual money a business pays its employees is a large portion of payroll liability, other variables included in this should also be considered.

General forms of payroll liability include:

  • Wages. Likely the largest proportion of payroll liability is the actual money that you’re paying employees. The more employees you have, and the more they’re each paid, the more you’ll have to devote to the employee wages portion of your payroll liability calculations.
  • Payroll taxes. Employers have a number of tax responsibilities that they must uphold. These include federal income tax, state income tax, property taxes, Social Security, Medicare, other state taxes, and employer contributions to employees’ taxes.

Just starting your business? Read our guides, What is payroll? and How to do payroll, for an understanding of the basics before learning more about payroll insurance.

What is payroll insurance coverage?

Payroll insurance is related to errors and omissions insurance—a form of insurance that protects businesses from mistakes made during the course of business operations. If a service-providing business commits some error or omission, errors and omissions insurance can cover legal and other costs that occur.

Other forms of insurance related to payroll are workers’ compensation insurance and employer liability insurance.

Workers’ compensation insurance

Business owners who employ people should be aware of workers’ compensation insurance. Workers’ compensation (or workers’ comp for short) is a form of insurance that offers certain benefits to an employee who is injured on the job. This can include:

  • Medical care reimbursement
  • Health insurance
  • Salary remuneration

Workers’ comp is beneficial to employees, of course. But it’s also advantageous to businesses since an employee who chooses worker’s compensation usually is legally barred from suing the company for the accident event.

Employer liability insurance

Employer’s liability insurance isn’t identical to workers’ compensation insurance, although it is as necessary. Employer liability insurance protects employers from financial damages if a worker suffers a job-related sickness or accident that isn’t covered by worker’s compensation.

For extra protection, such insurance can be coupled with workers’ compensation insurance. It’s a good idea to shop around for workers’ compensation insurance and employer liability insurance plans that complement each other. This way, you’ll know you have full coverage in the event of an incident.

Do you need insurance for payroll?

Yes, you do need insurance for payroll-related expenses. In fact, in most cases it’s illegal not to have workers’ compensation insurance to cover salary loss and medical expenses. Protecting your payroll with workers’ compensation and employer’s liability insurance is not only legally required in many cases, it’s also beneficial to your business.

The last thing you want is to lose a worker and face a lawsuit because you are refusing or unable to pay damages. By subscribing to the right payroll insurance plan, you can help protect your workers and your own business’s ability to remain productive. Investing in workers’ compensation and employer liability insurance helps keep your business running even in the event of a workplace accident or other unexpected expense.

In addition to insurance that helps you cover your payroll expenses, there are other forms of business insurance that are equally important to remember.

What other business insurance do you need?

Payroll expenses can account for a large portion of a business’s overall costs, but it’s far from everything that you’ll need to have coverage for. In addition to payroll-related insurance, it’s important to invest in these other forms of insurance, too.

General liability insurance

Every organization, whether it’s a small startup or a huge corporation, should have general liability insurance coverage. These policies protect your company from clients’ claims of property damage or personal injury resulting from any services, goods, or business activities that you provide.

For contemporary businesses that process sensitive business and customer information online, having a policy that includes data breaches and cyberattacks is also essential. Be sure to check that plans cover this when shopping around. It’s also smart to check if you’re insured against damage to your landlord’s property if you operate a home-based business or run your business from someone else’s property.

Property insurance

Property insurance is built to cover damage to property owned by your business. Do you need commercial property insurance if you have general liability insurance? Yes, as these forms of insurance cover slightly different things.

Property insurance covers damage to your:

  • Building
  • Personal business equipment
  • Goods
  • Supplies
  • Inventory
  • Office supplies
  • Tech

Theft, vandalism, and fire are usually covered under property insurance as well. This can vary by plan, so be sure to research any you’re considering before committing. Property insurance may also include coverage for lost earnings or interruptions in company operations depending on the insurance agency.

Professional liability insurance

Professional liability insurance is intended for businesses that provide certain kinds of services to clients. While not every business may need it, any business that provides advice to clients—like legal advice or consulting—should consider a professional liability insurance plan.

Professional liability insurance can also cover other forms of negligence. This might include an acupuncturist who accidentally injures a client, or even bureaucratic workers who file a form incorrectly with negative consequences for the client.

The bottom line is: If you provide services that may be accidentally rendered incorrectly in a way that harms clients, invest in professional liability insurance.

Business auto insurance

Lastly, businesses need automotive insurance if they use vehicles to carry out operations. This includes restaurants that make food deliveries, sales workers who drive to meet clients, and companies with full fleets of delivery vans or work trucks.

Be sure to research the different pricing for business auto insurance policies offered by the insurers you’re looking to work with. Because business auto use is so varied, it’s important to know which plan is right for your company. You won’t want to waste money on a plan tailored for a fleet of construction vehicles if you only need to cover two salespeople’s sedans.

Other ways to mitigate business risk

While a good insurance carrier is there for you if something goes wrong, the best policy of all is to mitigate risk whenever you can. Here are a few tips to keep your business, bottom line, and employees safe:

  • Follow all safety standards for your industry. This may be obvious, but it’s worth saying: Far too many businesses skip necessary safety precautions. Be sure that employees are instructed in proper lifting techniques, driving safely, and all necessary harassment training.
  • Invest in an alarm system. Good property insurance will protect you if something is stolen from your business, but it’s best not to deal with that hassle to begin with.
  • Limit liability where possible. Risky investments, high-value but unused property, and even problematic employees can all increase your business’s liability. Wherever you see a chance to cut down on risk, it’s often a good idea to do so.
  • Build out a risk management process. Due to limited resources, small businesses may not be able to devote an entire team to risk management. However, you’ll still want to sit down every so often and plot out what you believe the biggest risks to your business might be.
  • Invest in automated solutions. Human error can be a massive source of liability, even when everyone is doing their best. That’s why it’s often wise to automate where you can. One way to protect your payroll process is by automating it with payroll software. This software can help you easily manage and maintain your payroll system with minimal effort each month.

Final notes

Payroll insurance can help your small business excel while mitigating sources of risk. Insurance policyholders can rest easily knowing that their business’s assets are covered in the event that a payroll is done incorrectly or property is damaged.

While insuring your business and payroll process is important, it’s a good idea to also invest in preventative measures. Payroll software like QuickBooks Payroll makes completing regular payroll tasks simple and painless, mitigating the possibility of making a costly mistake. It also keeps your payroll records organized and easily accessible for tax time.

QuickBooks Payroll services can help you complete time tracking and same-day direct deposits, and automate payroll as well as taxes and forms. Pair your carefully chosen insurance policy with a QuickBooks plan to keep your business liabilities protected and managed going into the future.

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