Small Business

Four Types of Insurance to Cover Your Employees

Congratulations! Your business just joined the one in five small enterprises that have grown big enough to need employees to help get the work done. Now, alas, come some new types of insurance required by employers.

Some of these four types of insurance are required in certain states. Even if they aren’t mandatory for your enterprise, you may want to strongly consider them, as one or both of an incentive to your employees and a legal protection for the business itself.

Not included in the four is health insurance, the requirements for which remain in flux as the the healthcare debate continues in Congress. The Employer Shared Responsibility Payment, requiring the employer to sponsor employee health insurance, applies to companies with more than 50 full-time employees. However, as of late June 2017, the latest Senate proposal calls for eliminating this requirement, as did the House bill that preceded it.

Worker’s Compensation

This insurance covers work-related injury or illness. The definition of work-related injuries include those that occur off work premises, such as those arising from an auto accident that occurred while an employee was driving between job sites.

“Worker’s Comp” requirements differ from state to state. Many states, including Delaware, require Worker’s Compensation if you have even a single employee. Other, such as Florida, have different rules for different industries; for example, a construction company with even one employee is required to have coverage, while non-construction companies only must carry coverage after they grow to have four employees

Unemployment Insurance

Almost all businesses must pay for unemployment insurance, which is a joint federal/state program. Specifically, it’s required if you have at least one employee who worked at least one day per week for 20 weeks or paid $1,500 in wages in any quarter of the calendar year.

States such as Illinois require new businesses to register with their Department of Employment Security. The Federal Unemployment Tax Act (FUTA) requires you to pay a 6% tax to the federal government on the first $7,000 your employee earns. Your business earns a reduced rate (down to .6%) if you pay your state unemployment taxes on time.

Disability Insurance

A complement to worker’s compensation insurance, this coverage is against injuries and illnesses that occur off the job. If you own a business in California, New York, New Jersey, Hawaii, or Rhode Island, you must purchase disability coverage, which provides an injured employee with partial wage replacement for a specified amount of time, either short-term or long-term.

Unlike unemployment insurance, your business does not necessarily shoulder the entire cost of disability insurance. In New York, for instance, an employer can collect a limited amount in premiums. If your employee has more than one job, the required premiums can be divvied up between their two employers.

Employment Practices Liability Insurance

This type of insurance covers job-related lawsuits that include (but are not limited to) wrongful termination, discrimination, sexual harassment, and violations of leave laws such as The Family and Medical Leave Act. This coverage is separate from Worker’s Compensation coverage, and what’s known as Errors and Omissions insurance, in that this policy covers only violations of employee’s legal rights.

If you own a small business, your choice of carriers for this insurance might be limited. According to the American Bar Association, many insurance companies fear that a small employer will not consult appropriate legal counsel before making a difficult employment decision. Your carrier might also insist on picking the counsel for an Employment Practices case.

Susan Gulliford

Susan is a contributor to ValuePenguin.