Payroll Insurance: How to be a hero to your Employees in the event of a major loss.
Shortly before Christmas, on December 11, 1995, a boiler in the Malden Mills factory complex in Lawrence, MA exploded; the ensuing fire destroyed three buildings in the complex, shut down the business and put some 3,000 employees out of work.
The owner of the business earned his halo (and loads of very positive media attention) when he announced the next day that he would continue to pay the salaries of all his workers while the factory was rebuilt. Coming as it did just before Christmas, the attention and publicity that announcement received was magnified even further.
Payroll insurance, left unmentioned in all the news reports, actually covered the continuing payroll costs of the out of work employees. Specifically, business income insurance, which is designed to cover continuing expenses and lost profits after an insured loss, picked up the tab.
Payroll Insurance: Retaining a Skilled Workforce in the Event of a Loss
The example of that fire is worth another look. Malden Mills made Polartec, a synthetic insulating fleece for outdoor wear. A skilled workforce operating complex machines was essential to the business’s success.
Allowing that workforce to drift away as unemployed workers found other jobs would have vastly complicated the process of getting back into production once repairs were completed, so the owner, one presumes, prudently insured that ordinary payroll expense as part of business income coverage in his property insurance policy.
So what lessons can we draw from this today?
Unemployment is at historically low levels almost everywhere in the U.S., good employees are hard to find everywhere, and a good, competent, experienced worker who wants to work will find a job without much difficulty. Labor is in tight supply; employers are the ones who are having problems finding good workers.
What that means as a practical matter is that employers need to rethink the business income part of their property insurance program. Business income policies have always covered lost profits, continuing expenses and salaries of key management and supervisory personnel.
Ordinary payroll insurance covers payroll for regular production workers, those folks who would be thrown out of work in the event of something similar to what happened at Malden Mills. Business income policies not only allow the policyholder the option to insure ordinary payroll, they offer several choices for how to do that. Specifically, ordinary payroll can be included in full, in some limited amount, or excluded completely.
High Employment Rates = More Need for Payroll Insurance
If you were buying a business income policy ten years ago, perhaps you might have chosen to forego ordinary payroll insurance. Unemployment was high, the economy sluggish, and you might have thought that your employees would still be mostly around when you needed them to reopen after a loss.
Today that’s probably not so true. Especially if you have a workforce that requires or possesses specific and hard to find skills, experience or training. You know how hard it is to find those folks, and how important it is to hold onto them.
So, if you have not reviewed or rethought your business income policy, and adding payroll insurance, in a while, now is a good time to do that. Dealing with a shutdown of your business due to a severe fire, storm or other event is hard enough; you don’t need to add to your problems by letting your workforce drift away. Failure to plan could turn a loss that you might be able to survive into an event from which your business can never recover.