Many businesses are trying to take advantage of the government’s Payroll Protection Plan (PPP) Loans. It’s a great program to help keep people employed and keep our economy moving forward. However, like with any government assistance program, sometimes there are unintended consequences.
Insurance policy premiums are determined in a few different ways. Sales, cost of goods, and payroll are a few examples of how the carriers rate premiums. The problem arises for business that have their premiums based off payroll.
A company takes money from the government and pays it directly to their employees. The employer didn’t profit from any work their employees did for that payroll. The insurance carrier wasn’t exposed to any more risk from that additional payroll. However, the company will end up paying insurance premiums on that additional payroll. They will be losing money by helping keep their employees get paid by paying for insurance on work that didn’t happen.
What Should Business Owners Do?
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Find out how your insurance policy is rated.
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Any payroll you use for employees that didn’t work a shift for you, keep track of that in a separate class code. At audit, you will have ammo to justify not paying additional premium on those payroll dollars.
We don’t know for sure how an insurance carrier is going to handle these situations, but it will be easier for you to combat the audit if you’re prepared ahead of time.
If you have any other questions or concerns about PPP Loans and how they will affect your business, fill out the form below and we will be in touch soon.
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Article by Aaron Hennings
Aaron has been in the insurance industry since 2010. He specializes in helping businesses in the Construction, Habitational, and Manufacturing industries, but has experience working with businesses of all kinds.
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