Consulting businesses provide expert advice to their clients in a number of different industries. As the owner of a consulting business, you rely on knowledgeable and skilled employees to effectively serve your clients.
In this article, we cover some of the primary types of insurance coverage available to cover the health and well-being of your employees. Some types of insurance for employees of your consulting firm, such as workers’ compensation insurance, are required by law in many states. Other types, such as key man insurance, can protect your business in the event of the death of a critically important employee or partner.
We also discuss insurance that is part of a comprehensive benefits package for employees of your consulting firm. As the owner of a consulting firm, you know that attracting and retaining great employees is a key factor in maintaining your company’s competitive advantage. Providing health, life, and disability insurance to your consultants and other staff can promote happiness and wellness in your workforce.
Workers’ Compensation Insurance
Workers’ compensation insurance provides financial benefits for workers who are injured or become ill in the course of performing their work duties. It covers work-related injuries or illnesses caused by the work environment or the requirements of their job. In most states, workers’ compensation insurance is legally required for consulting companies if they hire employees other than the company owners.
Workers’ compensation insurance pays a portion of your sick or injured employee’s lost wages and also pays for his or her medical treatments or hospital stays. In exchange for this payout, employees cannot sue your company for creating a situation that caused them to become ill or injured. By its nature, workers’ compensation insurance is no-fault. This means that neither party is held legally or financially responsible for the nature of the incident, even if one of them was in fact at fault.
For example, a marketing consultant arranges a consultation with a client. The client asks if they can meet at his own company premises rather than the marketing agency. On the way to the meeting, the consultant falls down a flight of stairs and breaks her leg. Because she was traveling for business purposes, workers’ compensation insurance would cover her medical treatment, any necessary physical therapy, and part of her salary if her injury temporarily prevents her from going to work.
Workers’ compensation insurance covers a variety of situations, including injuries in the workplace, illnesses arising from toxic or unsafe work environments, accidents that occur in the course of traveling for work (although not those that happen while traveling between home and the workplace), violence occurring on company property, or natural disasters.
Although coverage varies by insurance company and state of residence, workers’ compensation insurance generally provides financial benefits to employees including:
- Medical treatments and hospital stays
- Long-term rehabilitation or physical therapy
- A percentage of wages lost while the employee is unable to work due to the injury or illness
The amount of salary that the employee will receive during the period he or she cannot work will vary. It can be around two-thirds of an employee’s standard wage, but this can change depending on the state, and the nature and severity of the injury. It can also vary depending on whether the employee will be permanently or temporarily disabled as a result of the workplace incident.
Workers’ compensation insurance also provides coverage for funeral costs and dependent needs if an employee dies in the workplace or as a result of job duties.
Key Person Insurance
Key person insurance is a life insurance policy designed to help companies survive a temporary loss in revenue or adjustment period if a critical employee in its business dies. Employees defined as “key persons” vary depending on the business. For a consulting business, it could be the owner, a top manager, or even a consultant who has several big clients.
If one of these key employees unexpectedly passes away, it can be devastating for a company, especially if it is a small business. The business may suffer a significant loss of revenue and productivity. Losing a high-level employee entails a lot of time to restructure as the remaining employees reassign work and step into new roles.
With key person insurance, the consulting firm takes out an insurance policy on the life of each of its key people. The company is the owner of the policy, as well as the beneficiary, and the company also pays the premiums. If the key employee dies, the consulting firm receives a payment from the insurance company.
In a consulting business, key person insurance can be particularly important. Businesses like this thrive on client relationships, many of which are built over the years with one particular employee. If a key employee dies, it is possible that the business will lose clients who are no longer interested in doing business with the company.
For example, perhaps a business consultant has been helping a company with its organizational needs for many years. He has helped expand that company’s services, improve its marketing, and grow its client base and revenue. Over the years, the company’s owners have come to trust him. They are also extremely grateful for all the ways that he has gone above and beyond to help them succeed. The consultant is about to help the client open a large market when he suddenly suffers a stroke and passes away.
Now, not only does the client lose an important relationship that has been built on trust, but there is also restructuring to be done. The consulting business has to reassign this client to a new consultant. The client may not immediately trust the new consultant, and the new consultant has to take time to become familiar with the client’s needs and goals. In the meantime, productivity slows down as the company tries to restructure. The client may decide it is no longer interested in using the services of the consulting business. The client leaves, taking their money with them. This is a huge financial blow for the company.
However, with key person insurance, the consulting company has a safety net. It can survive any temporary loss of revenue due to restructuring, lost clients, and loss of productivity. Although it may still be a challenging time, the company will not go bankrupt after losing a key person.
Employee Benefits Coverage
As a consulting firm owner, you know that your people are your firm’s most valuable asset. Attracting and retaining the highest quality consulting employees is key to your firm’s current and future success.
An important factor in effectively recruiting great people is offering a comprehensive employee benefits package. This package can include several types of group insurance plans that your consulting firm can sponsor for the benefit of your employees. These plans include:
Group Health Insurance
For consulting businesses, one of the most popular employee benefits you can offer is a group health insurance plan. Group health insurance sponsored by your company helps your employees pay for medical expenses.
Your company has the ability to choose the amount of the group insurance premiums it will pay on behalf of employees. Your employees can also pay for part or all of the cost of coverage through payroll deductions.
Group health insurance can often be less expensive for your employees than buying health insurance on the open market. It also provides multiple tax benefits for your consulting company, as health insurance premiums are deductible as a business expense. Additionally, employee contributions to health insurance premiums also reduce their taxable income, which reduces payroll taxes for your business.
If your business employs 50 or more people, it is required by law to provide them with a health insurance policy. Smaller businesses with less than 25 employees may be eligible for tax subsidies to help them afford the cost of providing insurance to their employees.
Many different kinds of health insurance plans are available for consulting businesses, offering varying levels of coverage and access to doctors and hospitals. Plans with more comprehensive coverage or requiring lower levels of cost sharing generally cost more.
Group Life Insurance
Group life insurance provides some financial security to dependents of your employees if they pass away. The employees of your consulting firm can choose one or more beneficiaries of their life insurance plan, such as their spouse or children, to receive benefits in the event of their death.
Group life insurance plans are usually term insurance, which means they need to be renewed on a regular (usually annual) basis. They are also guaranteed issue, which means that employees are not required to provide proof of health or medical history in order to qualify for coverage.
Usually group life insurance plans provide a death benefit that is a multiple of an employee’s salary. For consulting firm employees, it is common for the payout to be 1- to 2- times an employee’s salary. It is common for employers to pay for the cost of premiums for a 1- to 2- times salary benefit on group life insurance plans. You can also offer your employees the option to purchase additional coverage using paycheck deductions.
Group Disability Insurance
Group disability insurance is intended to provide financial benefits for the employees of your consulting firm if they are unable to work due to a disability. It covers disabilities that are unrelated to work because work-related disabilities are covered by workers’ compensation insurance. This type of insurance falls into two categories: short-term and long-term disability insurance.
For the purposes of these insurance plans, disability is defined as an injury or illness that keeps an employee from fulfilling the basic tasks of his or her job. For example, many consultants are required to do a lot of typing in the course of their work. If a consultant develops severe arthritis and is no longer able to type, he cannot fulfill one of the basic functions of his job. If he has a disability insurance policy, he can file a claim and begin to receive disability checks.
Short-term disability insurance refers to disabilities that are temporary. Usually, this means that they resolve in a year or less. Short-disability insurance is not intended to completely or even mostly replace income. Rather, it is meant to supplement disabled employees’ finances for the period of time that they cannot work.
An example of a short-term disability might be something like a broken collarbone. An employee cannot perform basic office duties and needs a healing period of several months. During that time, he can file a claim for his short-term disability insurance and receive a portion of his income so that he can get by for a few months while unable to work.
Long-term disability insurance is intended to cover conditions that are not expected to resolve for a year or more. This type of plan provides a larger percentage of an employee’s salary to provide for them for as long as they are unable to work (or up to age 65). Examples of long-term disabilities would include conditions like cancer, chronic pain, or stroke.