General liability and payroll: know your limits!
By Dan Weedin, CIC
I recently spoke at the Remodelers Council of the Home Builders Association of Kitsap County - and learned something that actually startled me. I was surprised to find that some contractors don’t know there is a maximum payroll limitation for general liability in the state of Washington. This is important because it impacts what you pay for your liability insurance.
Basically, this rule means that if you are a contractor who uses your labor payroll to determine your general liability rate, the maximum you need to report for any employee is $600 per week, which works out to $31,200 a year. So if you have an employee who makes more than that, say $45,000 a year, you should not be reporting the larger number to your insurance company for use in its rating. Any payroll under $31,200, of course, will be rated as actual dollars.
If you want to see some actual company language, go to the premium audit section on Safeco Insurance’s web site by clicking here. That page details the limitation I described above.
You’ll find that insurance companies using payroll as a rating basis adhere to this rule. However, some insurance companies do not use payroll as a rating basis, in which case this limitation would not apply. A company can use sales to rate its liability, although I know of only one major company that does. Others may insure artisan contractors on a Businessowners policy, which is not subject to audit, so payroll is not a factor.
When you are reviewing your declarations page, you may find a payroll rating basis for Stop Gap, which uses your actual payroll number. This coverage applies to Employers Liability and is specific to the state of Washington. There is no payroll limitation for Stop Gap.
Take the time to check on your liability policy and find out how it is rated. If payroll is the determining factor, make sure your company is using the correct basis for rating.
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