Business Interrupted? How A Payroll Endorsement Can Help.
Ordinary payroll is typically defined as the entire expense of payroll for all employees of an insured entity, except officers, executives, department managers and employees who are under contract. All such 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 should be reimbursed.
Without An Endorsement, Payroll Expenses Can Max Out
However, when employees are wholly 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.
Retain Staff With An Ordinary Payroll Endorsement
This type of endorsement may be necessary to avoid difficulties with union contracts. In other words, an ordinary payroll endorsement is a wise investment for a business that has non-critical employees that they would like to keep on staff until after the business is back up and running.
Once in effect after an incident, an ordinary payroll endorsement does not affect the business interruption policy’s coverage of necessary employees’ payroll. After the number of days specified in the endorsement pass, payroll of necessary employees will continue to be covered. Your insurer will require proper documentation of why specific employees are necessary for the continuation of your business.
An ordinary payroll exclusion endorsement can also eliminate coverage altogether for payroll expense of employees other than those who are necessary to the function of the business, which limits your insurance premium but could present a serious risk to your business in the event of a loss.
Count On ALIGNED For Expert Insurance Advice
Among the many decisions you will make when buying business interruption coverage is whether to insure ordinary payroll, and, if so, for what length of time. If you choose not to insure ordinary payroll, be sure to review union contracts or other labour issues that could arise as a result of a catastrophic loss.
Because your business needs can change from year-to-year based on type of operations, plant or office locations and the economy, it is important to review your insurance on a regular basis.
An ALIGNED Advocate can provide expert guidance about business interruption coverage and an ordinary payroll endorsement for your organization. Talk to one of our advocates today about how we can help you secure the best products, services and insurance solutions for your business.
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Source(s): IRMI © 2007, 2012-2013 Zywave, Inc. All rights reserved. This Coverage Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
