When it comes to protecting your business and employees, there are various types of business liability insurance coverage to consider. Two common policies that often generate confusion are Employment Practices Liability Insurance (EPLI) and Workers Compensation. While both policies deal with employee-related issues, they serve different purposes and cover distinct areas of risk. In this article, we will explore the difference between Employers Liability and Workers Compensation insurance, their unique features, and how they can safeguard your business in different scenarios. By understanding these policies and their coverage, you’ll be better equipped to make informed decisions and ensure comprehensive protection for your business and employees alike.
What is Employment Practices Liability Insurance?
Employment Practices Liability Insurance is a type of elective commercial insurance that provides benefits to businesses in case they face employment-related lawsuits. It protects employers against claims made by employees, former employees, or even job applicants, arising from employment practices issues. EPLI typically covers a range of claims, including but not limited to:
- Wrongful termination
- Discrimination (e.g. age, sex, race, religion, etc.)
- Sexual harassment
- Failure to promote
- Defamation; reputational harm
- Emotional distress; mental anguish
- Invasion of privacy
This insurance can help businesses defend against costly lawsuits, cover legal expenses, settlements, or judgments, and provide support for hiring legal representation and conducting investigations related to these claims.
What is Workers Compensation?
Workers Compensation Insurance, also known as workers’ comp or workman’s comp. It is a type of policy that provides benefits to employees who have suffered job-related injuries or illnesses, including occupational diseases caused by workplace conditions, such as repetitive stress injuries or exposure to toxic substances. The aim of this coverage is to protect both employees and employers from the financial burdens associated with:
- Medical expenses: doctor visits, hospital stays, medications
- Lost wages
- Rehabilitation costs
- Death benefits for dependents (if employee dies on the job)
In most cases, Workers Compensation is a requirement for businesses to provide coverage for their employees. This type of insurance is a no-fault system, meaning that employees do not have to show that their employer was at fault for their injury or illness to receive compensation.
Key Differences Between EPLI and Workers Compensation
The similarities and differences in terms of coverage between EPLI and Workers Compensation are stark and important.
EPLI and Workers Comp Similarities:
- Both protect businesses from financial loss due to employee-related issues.
- Both cover specific risks that are common in the workplace.
- Both aim to provide support and compensation to employees in different situations.
EPLI and Workers Comp Differences:
- EPLI focuses on non-physical damages and legal claims related to employment practices. Workers Compensation primarily deals with the physical well-being of employees.
- EPLI covers claims brought by employees or job applicants. Workers Compensation is applicable to all employees who suffer work-related injuries or illnesses, regardless of fault.
- EPLI provides coverage for legal expenses, settlements, or judgments. Workers Compensation covers medical expenses, lost wages, and rehabilitation costs.
- The costs for EPLI can be more variable and unpredictable compared to Workers Comp.
- Claim payouts for Workers Comp are more regulated and standardized than EPLI.
It’s important for businesses to understand these similarities and differences, and have both policies in place to ensure comprehensive protection for their employees and themselves.
Employment Practices Liability, Workers Comp Cost & Claim Payouts
Let’s expound upon our last points from our list of differences: the cost and claim payouts of EPLI and Workers Comp.
The cost of EPLI can vary significantly depending on a few factors, including:
- Size of the business: The number of employees in the company can impact the cost of EPLI coverage. Generally, larger businesses with more employees may have higher premiums.
- Industry and risk profile: EPLI premiums can vary by industry, as certain industries may have higher risks of employment-related claims. For example, industries that deal with sensitive information or have a history of discrimination or harassment claims may face higher premiums.
- Claims history: A business with a track record of previous employment-related claims or lawsuits may see increased premiums. This is because insurance companies consider past claims as an indicator of future risk.
- Risk management practices: Insurers may consider the risk mitigation efforts implemented by a business. Businesses that have robust HR policies, training programs, and a proactive approach to preventing employment-related claims may be able to secure lower premiums.
Furthermore, the specific coverage limits, deductibles, and endorsements chosen by a business can also impact the cost of EPLI. It’s important for businesses to carefully assess their risk exposure and work with experienced insurance professionals to determine the appropriate coverage and associated costs for their specific needs.
Claim payouts for EPLI are usually in the form of settlements or judgments to the claimant, and they can range from relatively small amounts to significant sums, depending on the nature and severity of the wrongful employment practice.
There’s some overlap with EPLI when considering the premium calculation for Workers Compensation cost, but claim payouts bear no similarity.
The cost of Workers Comp includes:
- Payroll and wages: The amount of payroll or wages paid to employees is a key factor in determining Workers Comp premiums. Higher payroll generally leads to higher premiums, as it indicates a larger exposure to potential workplace injuries or illnesses.
- Industry and risk profile: Workers Comp premiums are often based on the specific industry classification of the business. Different industries have varying levels of risk, and high-risk industries, such as construction or manufacturing, may typically have higher premiums compared to low-risk industries like office-based businesses.
- Accident and claims history: Businesses with a history of workplace accidents or workers’ compensation claims may see higher premiums. Insurers consider a business’s claims history as an indication of its risk level, and businesses with a higher frequency or severity of claims are often charged higher premiums.
- Safety programs and risk management practices: Employers with strong safety programs and risk management practices may be eligible for cost-saving credits or discounts on their Workers Comp premiums. Demonstrating a commitment to workplace safety by implementing safety training, providing proper equipment and protocols, and maintaining a safe work environment can potentially reduce premium costs.
- Experience modification factor (EMR): The EMR is a factor that insurance companies use to adjust premium rates based on a business’s historical claims experience. A lower EMR, reflecting a history of fewer and less severe claims compared to industry averages, may result in lower premium rates.
Claim payouts for Workers Compensation are more standardized and predictable, with benefits provided for medical expenses, lost wages, and rehabilitation costs. The payout amounts are typically based on statutory guidelines and formulas established by each state to ensure fair compensation for injured workers.
There are so many types of commercial insurance, and every policy varies. Knowing which are wise to have and which are extraneous is important. Need help filtering through the details? Connect with us – the Independent Insurance Associates team is here to help!