Business owners alert: do you have sufficient Ordinary Payroll coverage in your commercial insurance policy? Because you should probably have more – trust us.
Most business owners aren’t even sure if they do or don’t have enough Ordinary Payroll coverage. This is a critical endorsement within your standard business owner’s policy (BOP). If you have a fire or water loss, or a different property catastrophe occurs that causes you to shut down your business for a period of time, your Ordinary Payroll coverage is what allows you to continue paying certain – if you will, “ordinary” – employees while you make repairs to your covered property.
Note that standard BOP coverage for Ordinary Payroll only lasts for 60 days. It’s designed to cover staff members who are NOT considered “key employees” – this usually refers to employees who are relatively easy to replace in the job market. Maybe you have team members manning the counter or running the register. Presumably, these roles are not difficult to fill when you’re needing to hire.
As any business owner can attest, however, even counter workers or part-time employees are hard to find. This is especially true in today’s market, which has a labor shortage. Even if they’re not a manager or a highly skilled employee – if they’re just “ordinary” – these employees might be both key to your business operation and very hard to replace. So, you should consider an endorsement in your BOP to extend your Ordinary Payroll beyond the standard 60-day window of coverage. This is crucial.
To underscore the point, take the example of a bakery whose claim we recently adjusted. This bakery had a bad fire. The BOP provided 12 months of Business Interruption and Extra Expense coverage. The bakery was completely shut down – no temporary location or alternative operation options were available. The first thing we did was look at the policy and review their coverage. Should they continue to pay their “ordinary” staff?
Once the 60 days of Ordinary Payroll coverage ran out, the bakery had to figure out which employees they would need upon reopening. They had to consider each employee: Were they indispensable to business operations? How long was the person employed there? What was their job title? This is where disputes arise with the carrier. It was a simple fact that every single employee was crucial. The head baker, for example, was employed for 35 years and had specialized skills – he was responsible for producing their award-winning breads and pastries. He may not technically qualify for Ordinary Payroll purposes, but he was certainly key to the business operations.
Some carriers, however, may not appreciate this distinction. To them, that baker seems replaceable, even though the bakery owner considers him to be absolutely essential. Some insurance companies understand these differences; others might dispute it. This type of dispute can be avoided by simply endorsing your BOP to make Ordinary Payroll last for a longer period of time than the standard 60 days. That’s the safest bet.
