Payroll insurance is a type of business insurance policy that can help an ailing company cover payroll. Think of it as a sort of short-term disability policy. It will usually cover 100% of the employee payroll for a set period of time (say, three months), and then a partial amount of 33% for another set period of time.
The purpose of payroll insurance is not to carry the payroll responsibilities of a failing company indefinitely; it simply pays employees for a period of time, allowing some time for the business to lay off nonessential workers and stop the bleeding.
So, It’s Not Worker’s Comp?
At first glance, many people confuse payroll insurance with Worker’s Compensation insurance, which is an entirely different animal.
Worker’s Comp benefits the employee in the event of an accident or injury on the job, providing such benefits as paid wages, medical compensation, and compensation for future lost wages. These benefits are provided in exchange for an agreement not to sue the company for negligence.
This type of insurance is mandatory in the United States and many other countries, unlike payroll insurance, which is entirely optional.
Do I Need Payroll Insurance?
Well, it’s not a bad idea, particularly for small businesses who feel the effects of an economic downturn more quickly. Not only does it make sure that your valued employees receive their paycheck, it helps keep them on the job during your efforts to survive during a rough patch.
In addition, in the event of a short week, or a short month, in which you just can’t scrape together enough cash to make payroll, such an insurance policy keeps you in the game without any loss of continuity or productivity.