Many Business Interruption policies contain two forms of insuring payroll.
- 100% within Gross Profit (Item 1).
- Dual Basis Payroll (Item 3).
Confusion often arises regarding which form of payroll cover is appropriate.
If payroll is not a significant expense it may be approrpriate to insure it 100% within the Gross Profit item. This is achieved by simply not listing payroll as an uninsured working expense.
If payroll is a significant expense it is necessary to determine what it includes.
If it largely represents permanent, skilled employees which need to be retained in the event of a loss it may also be appropriate to insure payroll 100% within Gross Profit. For example this may be appropriate for professional service providers including solicitors, accountants, insurance brokers, etc.
If a large proportion of the payroll expense comprises casual, unskilled staff which may be dismissed in the event of a loss it may be appropriate to insure payroll on a dual basis.
To effect this cover "payroll" needs to be listed as an uninsured working expense to delete it from the Gross Profit item. A separate declared value then needs to be specified for Payroll (Item 3). This should include other parameters including an Initial period, Remainder Percentage, Period of Consolidation.
The Initial Period represents the period immediately following the fire (or loss event) over which all employees will be required. For example they may be required to clean up, or union awards or enterprise bargaining agreements may require payment of a minimum number weeks wages on termination.
The Remainder Percentage represents the proportion of the payroll after the Initial Period which may continue to be paid. For example it represents the salaries and/or wages for key management and administration staff and/or key manufacturing and supervising labour. This proportion is expressed as a percentage.
The Period of Consolidation is the number of weeks wages which have been covered if the Initial Period and the consolidated Remainder Period is combined. For example if a Maximum Indemnity Period of 52 weeks has been selected with an Initial Period of 12 weeks and Remainder Percentage is 40%, the Period of Consolidation is 28 weeks: -
(12 weeksx100%)+((52 weeks-12 weeks)x40%).
Specialist advice should be obtained to ensure payroll is adequately covered.
Author
Published with permission of Claim Solutions Pty Ltd.
Insurance Policy
Country: - Australia
Policy Description: - Mark IV Industrial Special Risk (ISR) policy recommeded by the National Insurance Brokers Association (NIBA).
Insurer: - Various.
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