• Every business is exposed to potential claims and lawsuits, which can be very costly to defend against and may result in significant financial damage.
• EPL insurance protects companies from employment-related claims and covers the legal costs derived from them.
• At EmPower HR, we provide risk management and compliance services to keep your business safe and help you get the right EPLI coverage. Reach out to get started!

No business is exempt from suffering legal claims or lawsuits. Equal pay claims and lawsuits alleging workplace discrimination and harassment are on the rise, so keeping your business protected is vital. That’s where Employment Practices Liability Insurance (EPLI) comes in.

Whether you have a large or small business, having EPL insurance can help you handle costly defense costs and avoid financial damage.

In this article, we’ll dive into the main aspects of EPLI so you can learn why it’s important, its main components, and how to reduce risks and be proactive.

Let’s get started!

Understanding Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance, known as EPL insurance or EPLI, is a type of insurance coverage that protects employers from employment-related claims and lawsuits. The most common allegations against employers include:

• Wrongful termination
• Discrimination
• Sexual harassment
• Defamation

EPL insurance covers the costs of legal defense, settlements, and judgments incurred by companies as a result of a claim, despite the outcome.

According to the U.S. Equal Employment Opportunity Commission (EEOC), discrimination or harassment lawsuits have increased up to 50% from 2022 to 2023.

The industries that received a higher number of lawsuits were hospitality, health care, and retail, SHRM reports.

EPLI vs Employer’s Liability Insurance vs Workers’ Compensation: What’s the Difference?

It might be confusing to understand the differences among EPLI, Employer’s Liability Insurance, and Workers’ Compensation.

But these are the basics you need to know: While EPLI focuses on claims related to employment practices, Employer’s Liability Insurance and Workers’ Comp protect businesses in the event of workplace injuries or employee illness.

In the case of a health issue or job-related injury, Workers’ Compensation provides coverage for medical expenses, rehabilitation services, and lost wages. Employer’s Liability Insurance, on the other hand, pays for legal expenses when an employee sues their employer for their workplace injury.

While business owners are required by law to provide Workers’ Compensation in most states, EPLI is optional — though it’s a smart business decision to have it.

Why Every Business Needs EPLI

Every business, regardless of its size, is exposed to potential claims and lawsuits. In fact, U.S companies have at least a 10.5% chance of having an employment charge filed against them, according to Hiscox research.

Employee claims can occur at any stage of the employment cycle, from hiring to termination. For example:

• A job candidate that has been asked illegal questions regarding religion, citizenship, or marital status during the hiring process presents a claim alleging discrimination and unequal treatment.
• Workers who have been misclassified as contractors instead of employees and have unpaid wages and overtime present a lawsuit.
• An employee who has been denied a promotion after filing a complaint presents retaliation charges.

Without adequate business insurance, these kinds of employment-related claims can be very costly to defend against and may result in significant financial damage if found liable, especially for small businesses.

“The average cost for a small business to defend and settle a claim is $160,000.”

— Hiscox

With EPL insurance, companies can benefit from:

• Being protected against lawsuits
• Preventing financial losses
• Gaining access to legal resources and expert advice
• Implementing risk management strategies

Having EPLI coverage provides peace of mind for business owners and executives, knowing that they have financial protection in place in case of employment-related lawsuits. That way, they can focus on running and growing their business without the constant fear of litigation hanging over their heads.

Key Components of EPLI

EPLI’s coverage can vary across insurance providers and might be different based on your company size and specific state regulations.

Here’s what most EPL insurance policies include:

• Coverage for employment-related claims: EPLI provides coverage for various claims made by employees alleging wrongful employment practices, including but not limited to discrimination, harassment, wrongful termination, retaliation, defamation, and failure to promote.
• Legal defense costs: EPLI covers the costs of defending against employment-related lawsuits, including attorney fees, court costs, and other legal expenses. This coverage applies whether the claim goes to trial or is settled out of court.
• Settlements and judgments: EPLI policies typically cover settlements and judgments arising from covered claims. This includes payments to employees for damages, back pay, front pay, and other compensatory relief ordered by a court or agreed upon in a settlement.
• Third-party coverage: Some EPLI policies also provide coverage for claims brought by third parties, such as customers, clients, vendors, or business partners, alleging employment-related misconduct by employees of the insured business.
• Policy limits and deductibles: Like other insurance policies, EPLI typically has coverage limits, which represent the maximum amount the insurer will pay for covered claims during the policy period. Policies may also include deductibles, requiring the insured business to pay a certain amount out of pocket before the insurance coverage kicks in.
• Exclusions: EPLI policies often contain specific exclusions, detailing situations or circumstances for which coverage is not provided. Common exclusions may include claims arising from intentional misconduct, criminal acts, bodily injury or property damage, and certain types of contractual disputes.

Risk Management Strategies

While EPL insurance protects businesses in the event of an employment-related claim, there’s a more proactive approach that companies should take: implementing risk management strategies.

Being able to manage risks and be prepared reduces the likelihood of employment-related claims and keeps your business safe from financial losses.

Here’s how businesses can effectively address risk exposure:

• Develop comprehensive policies and procedures. Keep your business compliant with federal, state, and local laws. These policies should cover areas such as equal employment opportunity, anti-discrimination, harassment prevention, and more.
• Provide regular training and education. Educate employees and managers on their rights and responsibilities related to company policies and employment laws. Focus on preventing discrimination and harassment, as well as handling complaints and conflicts effectively.
• Maintain detailed records of employment-related decisions, actions, and communications. Document performance evaluations, disciplinary actions, complaints, and investigations. Consistent and well-documented policies and actions can help defend against allegations of discrimination, harassment, or wrongful termination.
• Foster open and transparent communication between management and employees. Encourage employees to report concerns or complaints promptly through accessible and confidential channels. Respond promptly and appropriately to all complaints and take them seriously, conducting thorough and impartial investigations as needed.
• Ensure that employment practices are fair, consistent, and applied uniformly across all employees. Avoid favoritism or disparate treatment based on protected characteristics such as race, gender, age, religion, disability, or sexual orientation.

EmPower HR: We’ve Got Your Blind Spots Covered

Keeping your business compliant and safe is one of the biggest challenges for every company, especially if you have a small HR team.

By partnering with a PEO, you can delegate the heavy lifting to experienced compliance professionals who will make sure you are always up-to-date with the latest regulations and requirements.

At EmPower HR, we provide risk management & compliance services to help you navigate every legal aspect of your business, from creating company policies and employee handbooks to filing taxes accordingly.

Employment Practices Liability Insurance Final Key Points

Every business is exposed to potential claims and lawsuits that can harm your finances and reputation. Hiring EPL insurance can be a wise decision to keep your company covered and minimize the impact of employment-related claims.

Likewise, implementing risk management strategies is a proactive approach that allows you to identify situations that might cause damage to your company and take preventive measures.

Not sure which is the right EPLI coverage for your business? At EmPower HR we help you find the right option for your business and implement risk management strategies to stay one step ahead of potential issues.

Contact us to learn how we can help your business stay safe and compliant!

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We get asked about HR compliance a lot. Business owners want to make sure they’re compliant but don’t always know where to start. So, we wrote this (very awesome) guide to help you navigate the murky waters of HR compliance. Use our guide to learn the critical things you need to know: what is HR compliance, why it’s important to your business and HR compliance best practices.

What is HR Compliance?

HR compliance is the process of ensuring that your company’s practices, policies and procedures conform to federal, state, and local laws. Being compliant requires learning which laws apply to your organization and understanding what they require you to do. That’s easier said than done. 

Some employment laws are simple, they take the form of “do this” or “don’t do that.” The requirements may be easy, like minimum wage, or complex, like the Family and Medical Leave Act. Compliance laws can be pretty straightforward. (Pro tip: don’t pay less than the minimum wage!) But not all compliance laws are as clear on the details, which is what makes HR compliance an art to be mastered. 

Staying compliant requires knowledge, skill, and cooperation. You need to know where to go to ask the right questions and create policies and procedures that minimize business risk. (Not to mention, you need to be able to decipher HR legal-speak!) You have to ensure that everyone – from the executive team to newly-minted managers – know what they can and cannot do.

Why HR Compliance is Crucial to Your Business

Believe it or not, compliance isn’t just an HR problem. HR compliance is the support beams holding your business infrastructure together. No matter your company size or industry, all businesses need to conform to certain laws. Staying compliant protects your business’ assets and growth. But with the regulations constantly evolving, you need to be able to adapt.

81% of organizations reported that legal and compliance concerns were a challenge for their business over the last year.

The cost of non-compliance can affect all areas of your business. Between penalties, federal and regional regulation, reputation repair, and updating technology after a data breach – you can’t afford to be out of compliance.

 Here are just a few common costs associated with being out of compliance:

• Penalty fees
• PR costs associated with repairing brand image after a scandal
• Repairing brand reputation or the cost of rebranding
• Lawsuit settlement fees
• Fees to recover funds after a financial crime, scam or a data breach

Regulatory compliance helps you protect your business’s resources and reputation. In the long run, it’s worth it to invest in HR compliance. 

 Why is failing compliance so expensive?

Compliance failure can include hefty legal fees, compliance audit costs, and loss of revenue due to client mistrust. To defend yourself against the dark arts of compliance regulations, you’ll need to understand why companies fall out of compliance. Here’s just a few common penalties.

Common HR penalties that can cost you:

• Health Insurance Portability and Accountability Act (HIPAA): Violating HIPAA includes fines up to $50,000. If it is discovered that the violation occurred due to a lack of training, the employer is penalized. When healthcare professionals violate HIPAA, it is usually their employer that receives the penalty. 
• Affordable Care Act (ACA): A penalty of $2,750 (for 2022) per full-time employee (minus the first 30) will be incurred if the employer fails to offer minimum essential coverage to 95 percent of its full-time employees and their dependents, and any full-time employee obtains coverage on the exchange.
• Wrong Information on I-9s or W-2s: For 1-9 paperwork violations in 2022, the penalties range from $252 to $2,507 for the first offense for substantive violations or uncorrected technical errors. Failure to verify Social Security numbers or federal employer identification numbers (FEIN)on tax documents adds up. At the end of the year, missing or incorrect numbers on W-2s could result in a penalty by the IRS of up to $270 for each return.
• Occupation Health and Safety Administration (OSHA): Fines can add up to $14,502 per violation, as long as they’re not willful or repeated. Repeat offenders can be fined up to $145,027 per violation.

Examples of Common HR Compliance Issues

Even with the ever-changing compliance requirements, there are a number of regulations you’re bound to run into. Benefits, hiring and termination are just part of the employee circle of life (cue the music.) We’ve listed the compliance issues you’re bound to run into in the jungle of business.

Benefits Compliance

Most companies provide employee benefits: dental insurance, retirement plans and health insurance just to name a few. But few companies truly understand the requirements for each. For example, your company health coverage may need to adhere to the Affordable Care Act (ACA) and retirement plans are bound to the The Employee Retirement Income Security Act of 1974 (ERISA.)

Business owners should be aware of their responsibilities when it comes to offering employee benefits. Lean on your HR team to pay attention to compliance rules and help you determine the best way forward.

Non-discriminatory Hiring Practices

Every company needs employees but the hiring process can be tricky. For one, you need to be mindful about how you narrow down your candidate list and be sure that you don’t turn down candidates based on illegal factors. When going through your compliance checklist, be sure that you don’t do anything that could violate Equal Opportunity Commission laws. (Meaning that you can’t deny candidates based on disabilities, color, ancestry, and gender.) 

Updating your Employee Handbook

Your employee handbook isn’t just the most fun piece of literature your employees anxiously wait to read every year. (Ok that might have been over-exaggerated.) But even if no one reads the employee handbook — and only about 40% of employees ever do — updating your employee handbook is important. It protects employers against discrimination or unfair treatment claims. Having written documentation on your values and policies only benefits your business.

Your handbook is a living document that should adapt to constantly changing regulations and the changing needs of the company. It needs to be updated annually. And to really conquer compliance, you should require every employee to provide a written acknowledgment of having received the handbook.

HR Compliance Best Practices

When outlining your compliance playbook, there are a few best practices you need to know. That is, if you want to proactively tackle any compliance issues. Don’t wait for an audit and let your compliance plan be a Hail Mary pass. Follow these top tips and get ahead of the game: 

Review Your Rules Regularly

Compliance work is never really done. Not only do new legal requirements appear on the regular, but compliance rules need to be enforced consistently. Regularly checking your company practices allows you to identify risks and diagnose compliance issues before they turn into problems. 

On the surface, it might seem like HR compliance is only about protocol and blindly following the rules. But dig a little deeper and you’ll see that your HR compliance function shapes employee experiences and the workplace as a whole. For example, team diversity and inclusion training opens up your workplace’s culture to be more inclusive and engaging.

Create a Culture of Accountability

Company compliance starts with effective communication. (Human resources should be on your front lines promoting company compliance!) Let HR regularly communicate with your employees and train them on the critical compliance issues — like keeping company data secure, verifying employee information for W-2s and sending out updated employee handbooks. 

HR plays a crucial role in creating a culture of accountability, but all of your employees need to work together to reach compliance goals and solve problems.

Use a HR Compliance Checklist

Keeping up with compliance deadlines can be like trying to hit a moving target. Between tax deadlines (W-2s are due to the IRS in January,) 1094-C and 1095-C forms (due to the IRS in March) and more compliance documents — staying on top of compliance deadlines can be difficult. Many companies use a checklist to stay on top of the issues they need to keep in mind. 

Using a HR compliance checklist helps you stay organized and ensures that you won’t miss any important steps in the compliance process. Don’t lose sleep wondering if your policies and procedures are compliant. Use our complete 2022 checklist to make sure nothing falls through the cracks — so you can get back to driving your business’ success.

At times, there may be extenuating circumstances in an employee’s personal life that could negatively affect their work. In this case, an Employee Assistance Program (EAP) can be a great resource. Supervisors should remind employees of this service at any time during the supervisor/employee relationship.

If an otherwise “good employee” suddenly has changed in their performance, attendance or other behavior, a supervisor might be able to help the employee early on by referring them to the company’s EAP. Assistance from the EAP may alleviate any further correction needed, and can ultimately help you keep a good employee, thus alleviating the additional costs of recruitment, onboarding and training of a replacement.

However, If the second-level warning or suspension step is reached in the corrective action, the supervisor may choose to make a mandatory EAP referral if appropriate. It is important to note that the EAP is part of the support network that exists to assist in the various stages of corrective action and is available to every employee.

The Final Steps Of Termination

Termination of employment is the final action when all other appropriate steps have failed to achieve the desired improvements. In addition to the guidelines covered in Parts 1 and 2 of this series, there are additional considerations when the termination of an employee becomes necessary. For example, human resources is responsible for scheduling an exit interview with a terminating employee on the employee’s last day.

Tips For An Effective Exit Interview:

• Human resources should hold the meeting in a private conference room or office
• It is advisable to have a witness present and/or security personnel on standby during the termination meeting
• Obtain information from human resources in advance concerning such issues as benefits, insurance and final pay
• Confirm the employee’s current address and telephone number
• Collect all company property in the employee’s possession (e.g., keys, ID card, parking permit and access card, gate opener, pagers, cell phones, tools, manuals, company credit card, laptop, etc.)

Post-Termination Procedures

After you’ve completed the exit interview, you’ll also want to ensure that you cover the following items with the employee.

Personal Belongings

Ensure that any belongings the employee has on-site are returned to them. A supervisor can pack up the belongings and bring them to the employee after the exit interview so that they have them upon departure. Another option, if the employee has many items in their work area, is to give them the items they need in order to leave (e.g., coat/jacket, purse, personal briefcase) and then ship the rest within a week at the company’s expense.

Benefits

Benefits (life, medical, and dental) end on the individual’s last day of employment or last day of the month in which the last day of employment falls. Unless dismissed for gross misconduct, an employee also has the option to convert to individual life insurance, and/or to continue medical/dental benefits in accordance with Consolidated Omnibus Budget Reconciliation Act (COBRA) regulations.

Final Paycheck

Make sure you verify the address where you should send the employee’s last paycheck and inform them when they can expect to receive this payment. Address any costs which may be deducted from their pay, such as failure to return company property (keys, computer items, etc.)

Note: Some states require accelerated payment or authorization for any deductions of an employee’s final paycheck. Employers should contact their attorney or check state regulations for specific details.

Retirement Plan

In order to receive a disbursement of any amounts due from the retirement plan, the employee is required to complete and sign a distribution form and submit it to the human resources department. If an employee is on the retirement plan, information regarding this plan should be provided at the exit interview.

No one looks forward to having to make a termination, but by following official and defined steps, you can help make the process go smoother.

In these instances, it is important to document any corrective action taken with an employee of your business. When corrective action is initiated, it should be documented in a written Corrective Action Memo from the employee’s supervisor. The employee and the supervisor should both receive and retain a copy of the corrective action memo and the original should be sent to human resources for placement in the employee’s personnel file.

An effective Corrective Action Memo should include the following:

• The action being taken (i.e., first-level warning, second-level warning, suspension or termination)
• The specific violation or problem for which the action is being issued (e.g., performance, behavioral issues or attendance)
• Specific instances of problem behavior or violations, including dates and times
• Review of past counseling discussions or corrective action steps
• Description of the impact of employee’s behavior on organization or workgroup
• Statement of expectations and established timeframe for corrective action to be achieved
• Description of consequences (e.g., if this step fails, you may be subject to further corrective action up to and including termination of employment).
• Referral to the Employee Assistance Program (EAP), if appropriate/applicable
• Supervisor’s signature
• Employee’s signature (including the following statement: “Employee signature does not necessarily indicate their agreement, but only that they have received this memo.”) — If the employee declines to sign it, this should be noted on the memo

A Corrective Action Memo should be written with language that can be easily understood by the employee, and be stated in a factual and objective manner.

Note: Generally, if an employee maintains an acceptable level of behavior for six to 12 months, the Corrective Action Memo should be removed from the personnel file. Every company should have an established and consistently implemented policy and procedure that reflects this practice.

Planning A Corrective Action Meeting

Before the meeting:

Conduct a thorough investigation of the incident or issue, including interviewing the employee or any individuals who witnessed the incident or have first-hand knowledge of the performance problem. Be aware that if requested by the employee, a co-worker may be present during any investigatory interview. Any questions on this issue should be directed to your human resources contact.

Review any notes you have made regarding the problem, including supporting documents, copies of previous corrective action memos, attendance records,
or informal notes on counseling sessions. If suspending or terminating the employee, review plans with your supervisor and/or human resources.

Prepare a draft of the corrective action or termination memo and an outline of the points you need to cover during the meeting. Anticipate questions that the employee will likely ask, and be prepared with answers or a commitment to get back to the employee if the answer is not known.

Plan to meet with the employee in a private area, conference room or office. Time the meeting when the employee is least likely to be confronted by co-workers, especially if a suspension or termination is being done. Most often, the end of a workday and the end of a work cycle is preferred.

During the meeting:

• State the specific problem in terms of desired job performance as compared to actual job performance
• Review previous counseling sessions or corrective action steps that have been taken
• Give the employee a chance to respond and explain
• Describe for the employee the specific change in job performance you expect
• Ask the employee to confirm his or her understanding of your expectations
• Tell the employee the corrective action step you are taking (i.e., first-level warning, second-level warning, suspension without pay, or termination).
• Indicate your confidence in the employee’s ability to perform properly in the future, if appropriate
• Review the corrective action procedure and the consequences if stated expectations are not met
• Remind the employee of EAP, if appropriate/applicable, and how they can access those services
• Give a copy of the signed corrective action memo to the employee

After the meeting:

• Briefly summarize the meeting in writing for your files with factual comments and examples of what occurred
• Forward the original corrective action memo to human resources
• Monitor the employee’s performance and maintain open communication with the employee
• Give the employee the opportunity and the support to correct the problem

In the last part of our Reducing the Risks of Employee Termination series, we’ll cover how EAP may be helpful prior to termination and will discuss the final steps in the process.

It means there’s always a risk that a terminated employee could make an issue of the termination, claiming it was discriminatory or based on some other illegal reason. Though there are a handful of illegal reasons for firing someone, in most cases, employers can terminate an employee for any reason or no reason at all.

Regardless of the reason for termination, there is little a business can do to guarantee that an employee won’t call a lawyer or the Department of Labor to claim that their termination was illegal. This is why it is important to keep great documentation and records throughout your termination process. Likewise, this is also why no termination is risk-free.

That said, while you can’t eliminate all risk, you can and should do everything in your power to reduce them. Best practices to follow include having a clear, well-documented reason for corrective actions and terminations, and continuing to maintain professionalism and respect with the departing employee.

If you have a good reason for the termination, and the terminated employee knows you can provide evidence of this reason, they’re much less likely to try to bring a claim against you.

Corrective Action Procedures

Following documented action procedures is one way to ensure a smoother termination with less risk.

Sound company policy for corrective action consists of four steps which are generally administered in progressive order. However, in some cases, the seriousness of the infraction or performance issue may warrant skipping one or more steps in the process.

First Level Warning

The first level warning is a formal method of informing an employee of a relatively minor violation of company or department rules, or of failure to perform job duties in an acceptable manner. Generally, a first-level warning occurs after an employee has received counseling from their supervisor related to the issue(s), and it is intended to encourage the employee to change the behavior.

Second Level Warning

The second level warning is used when performance and/or attendance problems continue or when action more severe than a first-level warning is warranted.

Suspension Without Pay

A suspension without pay of three or more scheduled working days may be issued when performance and/or attendance problems persist, or when the offense is so serious that a first and/or second-level warning is not appropriate. The supervisor should consult with human resources before an employee is suspended.

Termination

If all prior disciplinary actions do not resolve the situation, or if the nature of the violation is so serious that a first or second level warning or a suspension is not appropriate, the employee can be subject to termination. The supervisor must consult with the office of human resources before an employee may be terminated.

Multiple Corrective Action Tracks

Performance or behavioral issues are generally treated in one track of corrective action and attendance issues are handled in a separate track. For example, an employee who has been issued a first-level warning for performance or behavior-related issues would receive another, separate first-level warning for an attendance problem that warrants corrective action. If attendance is corrected but the performance continues to be sub-standard, a second-level warning for performance may be warranted.

Length of Time Corrective Action Remains Active

Generally, it is recommended that corrective action be given for a period of two years. Therefore, if there is cause for further corrective action within two years, the next level of corrective action can be taken.

If it has been more than two years, but less than five years, from the last similar corrective action, the same level of corrective action generally should be applied.

If it has been five or more years since the last corrective action, no reference should be made to the previous corrective action. In some cases, the prior record may have been removed from the employee’s personnel file after six months to a year if performance improved. Your company’s Policies & Procedures Manual should state specifically how long a Corrective Action Memo stays on file.

In the next part of this series, you’ll learn the words an employer should use when drafting Corrective Action Memos, and how to plan and conduct a Corrective Action Meeting.

There are risks related to people that can result in expensive litigation, fines and even criminal punishment. Some of the issues which need to be monitored for effective compliance to lessen risk include:

• Recruiting and Hiring Practices
• Discrimination (EOE, ADA)
• Employee Relations
• Culture and Engagement
• Wage and Business Hours
• Worker Classification and Compensation
• Health Benefit Compliance (COBRA, ERISA, HIPAA, ACA)
• Performance Management Policies and Procedures
• Leaves of Absence (FMLA, adoptions, PDL, USERRA)
• State and Regional Law Compliance
• Safety in the Workplace and OSHA requirements
• Harassment
• Substance Abuse and Marijuana Laws
• Employee Mental Health
• Cyber Security Enforcement
• Conflict Resolution and Workplace Violence
• Terminations

While this list of potential risks associated with employees is lengthy, good onboarding and regular training by knowledgeable staff can help ensure that a business’s biggest asset remains that, and not its largest risk.

How Human Resources Can Help With Employee Risk

Today’s human resource departments are more strategic than those of years past. They are involved in workforce optimization, talent management and culture development—all essential HR foundations that can determine and reinforce good PRM. Every company’s HR plan should focus on being proactive in order to get and stay ahead of issues before they become a problem. Staying ahead of the PRM curve may well be the way to avoid any issues. There are two ways to do this:

Providing A ‘Living’ Employee Handbook

A current handbook will include organizational policies and procedures, standards of behavior and elements of a company’s culture. It will be continuously reviewed and updated as needed to ensure compliance with the latest legislation across all regions where a company conducts business. It will ensure accountability by requiring an employee’s signature at onboarding and when there is a change to the handbook.

Employees need to understand how they are expected to behave, be ready to confirm that understanding and ultimately be held accountable for their actions. A living handbook creates the ‘line in the sand’ that businesses need to highlight in order to communicate both what’s great about the organization and the behaviors considered unacceptable.

Establishing A Risk Awareness Culture

The ability to handle an incident when it occurs, such as a sexual harassment complaint or a workplace injury, is only part of a strong PRM strategy. It is critical that businesses have the tools and expertise to manage and mitigate risk before, during and after an incident.

This includes:

• Anticipating and preparing for potential risks
• Staying on top of changing legislation
• Knowing where to turn and how to respond when a risk becomes real
• Having the resources to react to an issue, limit liability and lessen further risk
• Establishing a risk awareness culture so all employees contribute to the work of identifying and mitigating people risk

Best Practices In People Risk Management Strategy

EmPower HR stays on top of the PRM issues by helping our partners keep up to date on the latest and best ways to help minimize these kinds of risks to their businesses. We help from the first day a person walks in the door, until they leave. It begins with the employee handbook and continues with ongoing, comprehensive training. In addition, we provide real answers from real experts. There’s no need to search the internet, we provide immediate access to certified, experienced advisors to help navigate your people-risk management issues.

Though there will always be risks in every workplace, EmPower HR has proven methods in PRM to help businesses build and maintain a strong culture, drive employee engagement and performance, and mitigate the numerous people-related compliance risks that exist in every organization.

PEOs and PSPs are the most standard options used by different businesses out there but can interact with your business differently depending on your needs. In outsourcing options, one size does not fit all, so it’s critical to understand your needs first and align them to the right solutions provider.

Here are some of their differences in more detail to help you understand the nuances of the partnerships and identity which solution is best for your business:

Co-Employment

With a PEO, you enter into a co-employment agreement. What is a co-employment agreement? It allows you to share some of the responsibilities and liabilities of being an employer by controlling some of the daily decisions while the weight of the liabilities are taken on by the PEO.

At the same time, your PEO provider will handle many of the duties that an internal HR team would, along with managing any risks. The difference with a PSP is that they will only handle the functions responsible for timekeeping, tax remittance, and paying workers for that period.

Question to ask: Based on the growth over the next 12-24 months, does utilizing a PEO help or hinder my business operations?

Cost

If you compare PEOs to a PSP, the PEO will likely be the more expensive choice depending on other services you have with your provider. The difference being that the PEO is multifaceted and very much involved in every part of your business.
Whether it’s compliance or training, a PEO is sure to hit the ground running when you reach out. With a PSP, you may need to hire other HR consultants to support the department as their duties start and stop with the administration of everything payroll. Depending on your arrangement, there could be additional cost savings in other areas of your operations as an offset to any additional costs

Question to ask: Do the costs create an advantage that I can use for my business size and model for today or is this better used in the future?

Compensation Insurance

One key difference between PEOs and PSPs is how workers’ compensation insurance is handled. PEOs provide workers’ compensation insurance when you enter an agreement with them. If you choose a PSP, you will be responsible for managing that liability. Now PSPs may be able to provide options based on the relationships they have with insurance agents; however, you will be responsible for managing the worker’s compensation as a whole.

Question to ask: Based on your workforce’s makeup, what is a better situation to navigate these areas and costs?

Contract and Termination

It’s common practice for PSPs not to require contracts to use their payroll services, whereas PEOs would generally require a contract for a specific period. On the other hand, a PSP is more flexible and would typically allow you to opt-out of your agreement at any time because the service is from pay period to pay period.

Another element to consider is paying state unemployment tax. If a PEO is responsible for maintaining and settling your state unemployment tax, depending on the state you reside in, you have to pay at their rate since they are the employer of record. Making a switch mid-contract may cause inconsistencies which may result in paying a more considerable amount.

Question to ask: Can your business benefit from a payroll provider’s flexibility, or does it create too much risk?

You are in the best position to know which option sounds right for your business from weighing the differences. Obtaining the facts relating to the employer of record, worker’s compensation, regulation, contracts, how the costs between a PEO and PSP can help make an informed decision.

Quotes serve as a straightforward way to help you compare financial costs quickly, and by looking at the pros and cons, you will also be aware of the implications of using any of them. As your business grows and evolves, so will your needs, so ensuring you evaluate your external partners every year will be key to having the best operational framework for your operations and employees.