EPLI insurance: Why employers need it, how PEOs provide it
In the last five years, 6 out of 10 employers have had to deal with employment lawsuits. There is a greater likelihood of a business being sued by an employee than by a third party or customer, with employees winning these employment litigation cases 68% of the time. Employment Practices Liability Insurance (EPLI) provides companies with insurance coverage, including cost of legal defense for facing discrimination, sexual harassment, wrongful termination, workplace torts and various other employment-related claims.
Employers need EPLI because…
In today’s unstable business world where employees are becoming more diverse, independent and knowledgeable, there has been a rise in employment-related lawsuits, making legal protection a must for any company. No matter how large or small, or how stable a relationship employers may seem to have with their employees, a business always runs the risk of being sued by its employees. In fact, small businesses face just as much risk of employment allegations as large ones, with 41% of all EPLI claims dealt against companies with 15 to 100 employees. This can stem from small and medium sized businesses placing low priority on supervisor training in HR legal matters (such as discrimination and sexual harassment) in order to focus more time and resources on overall business growth. This can often result in an increase in risk of employment-related lawsuits.
Case laws on employee rights to equal opportunity and treatment in a workplace pertain to every step of the employment process: recruitment, hiring, promotion and termination. The term “employee” applies to any past, present or potential hired personnel at your business. This means that any hired staff, from payroll employees to independent contractors, have the right to sue a company for violation of legal rights as employees.
Many companies believe that any employment-related claims they face will be covered by their general liability or workers’ compensation policies—this is not the case. Because these employment claims are not “bodily” or “personal injuries” nor are they accidental, general liability policy does not cover such instances. Worker’s compensation policy also specifically states that employment legal issues are not included under its coverage. Other business insurance, such as Directors & Officers (D&O) and Errors & Omissions (E&O), deal with lawsuit claims coming from only non-employees as well.
The cost of not being protected against these lawsuits on a business’s assets can become much greater than the cost of taking preventive measures. Typically, the sum of an employment claim’s expense, including settlement, compensatory award and defense cost, is greater than $250,000 without EPLI coverage. Having EPLI insurance can help protect and provide your business with legal defense aid and financial coverage in employment lawsuit claims.
PEOs provide EPLI coverage by…
Professional Employer Organizations (PEO) work to optimize HR practices for their client companies, and one such way is by offering EPLI insurance with coverage ranging from $1 to $2 million. A PEO that provides EPLI protection can also include other relevant services, such as access with employment law attorneys, background checks to reduce risks of future employment lawsuits, and training courses for managers and employers on proper ways to handle employment situations (hiring, termination, supervision, management). If these services were acquired separately from EPLI, the cost could be significantly greater than the PEO service cost.
Companies who employ a PEO have the advantage of paying lower EPLI rates. Like any insurance, EPLI insurance cost is rated accordingly to a company’s size and expected lawsuit risk, primarily depending on level of HR practices. PEOs can provide a broad, yet comprehensive range of HR functions, including writing employee handbooks, providing anti-harassment and anti-discrimination training, and much more practices that help decrease chances of employment lawsuit claims. Insurance companies understand that a business that has employed a PEO to manage its human resource duties will have better HR administration and consequently, less likely to be sued for violation of employee rights. As a result, insurance companies are much more likely to provide EPLI coverage for PEOs to include in their package services at a much lower rate. This is a win-win situation for many companies that hire a PEO—not only are they getting better EPLI coverage rates, but their HR practices will also improve and reduce future risks of employment claims.