Employment practices liability insurance (EPLI) is a type of coverage that protects businesses from claims alleging wrongdoing in the workplace. This insurance covers legal costs and potential settlements when employees, former employees, or job candidates file lawsuits related to employment practices.

EPL insurance typically covers several types of workplace-related claims, including discrimination based on age, gender, race, or other protected characteristics; harassment, including sexual harassment; wrongful termination and retaliation; failure to promote employees for reasons unrelated to work performance; improper hiring practices; emotional distress caused by inappropriate workplace behaviors; and third-party liability for damages involving parties unrelated to the business.

Any company with employees faces EPL exposure, as there are over 180 employment-related laws at the federal and state levels, not including additional city and county regulations. In certain states, businesses may need this coverage as early as when hiring their first employee.

Average cost of employment practices liability insurance

The average cost for defending and settling employment law cases is $160,000, highlighting the significant financial risk that businesses face from employment-related claims. However, the actual cost of EPL insurance premiums varies considerably based on multiple factors including company size, industry, claims history, and coverage limits selected.

How much employment practices liability coverage do startups typically buy?

Coverage recommendations for startups vary based on their stage of development and industry vertical. Early-stage companies typically purchase lower coverage limits that increase as they grow and hire more employees. The specific coverage amounts depend on factors such as the number of employees, revenue, industry risk profile, and geographic location.

Factors that influence the cost of employment practices liability insurance

Several key factors determine EPL insurance pricing. Company size, measured by number of employees and annual revenue, significantly impacts premiums since larger organizations typically face greater exposure. Industry type also plays a crucial role, as some sectors have higher rates of employment-related claims than others.

Geographic location affects pricing due to varying state and local employment laws and litigation trends. Companies operating in states with more stringent employment regulations or higher lawsuit frequency may pay higher premiums. Claims history is another critical factor, with businesses that have previously faced employment-related lawsuits typically paying more for coverage.

The company's human resources practices and policies also influence pricing. Organizations with well-documented HR procedures, regular employee training programs, and clear anti-discrimination and harassment policies may qualify for better rates. Additionally, the coverage limits and deductibles selected directly impact premium costs.

How is employment practices liability insurance rated?

EPL insurance is typically rated based on the company's payroll, number of employees, and industry classification. Insurers use actuarial data to assess risk levels for different types of businesses and employee counts. The underwriting process involves evaluating the company's HR practices, employee handbook policies, training programs, and any prior employment-related incidents or claims.

Insurance companies may also consider factors such as employee turnover rates, the presence of HR professionals or consultants, and whether the company has established complaint procedures and documentation practices. Some insurers offer credits or discounts for companies that demonstrate strong employment practices and risk management procedures.

Strategies to lower your employment practices liability insurance cost

Several strategies can help reduce EPL insurance premiums. Implementing comprehensive HR policies and procedures demonstrates proactive risk management to insurers. This includes maintaining updated employee handbooks, establishing clear anti-discrimination and harassment policies, and implementing proper documentation procedures for hiring, performance reviews, and terminations.

Regular employee training on workplace policies, discrimination, and harassment prevention can help reduce claims frequency and may qualify for insurance discounts. Working with qualified HR professionals or consultants can also improve risk management and potentially lower premiums.

Maintaining higher deductibles can reduce premium costs, though this increases the company's financial responsibility for smaller claims. Some insurers offer risk management services or resources that can help improve workplace practices while potentially reducing insurance costs.

Comparing coverage options from multiple insurers and working with experienced insurance brokers who understand employment practices risks can help identify the most cost-effective coverage options.

Additional specialized coverage

Beyond standard EPL coverage, companies may consider additional specialized protections. Some policies offer coverage for third-party harassment claims, which can arise when non-employees such as customers or vendors experience harassment in the workplace.

Wage and hour coverage addresses claims related to overtime disputes, meal and rest break violations, and other compensation-related issues. This coverage has become increasingly important as wage and hour lawsuits have grown in frequency.

Some EPL policies include coverage for workplace violence incidents or provide access to crisis management services. Immigration-related employment practices coverage may be relevant for companies that hire workers requiring employment authorization.

Certain industries or companies may benefit from coverage extensions that address specific risks related to their business model or employee demographics. These specialized coverages are typically added as endorsements to the base EPL policy.

FAQ

Q: When do I need employment practices liability insurance?A: You need EPL insurance as soon as you hire employees. In certain states, coverage may be required when hiring your first employee. Any company with employees faces EPL exposure due to the extensive web of employment laws.

Q: What does EPL insurance not cover?A: EPL insurance typically does not cover workers' compensation claims, wage and hour disputes (unless specifically added), intentional criminal acts, or violations of laws like COBRA or ERISA unless specifically included in the policy.

Q: How much does EPL insurance cost?A: Costs vary significantly based on factors like company size, industry, location, and coverage limits. The average cost to defend and settle employment law cases is $160,000, making insurance a cost-effective protection.

Q: Can I be sued by someone who isn't my employee?A: Yes, EPL insurance can cover third-party liability claims from job candidates, customers, vendors, or other non-employees who allege discrimination or harassment.

Q: How quickly can I get EPL coverage?A: With digital insurance platforms, you can often apply in 10 minutes or less and activate protection within 24 hours, though traditional processes may take longer.

Q: Does company size affect my EPL risk?A: Yes, both very small and large companies face EPL risks, but the nature and frequency of claims may differ. Even companies with just a few employees can face significant employment-related lawsuits.

This content is for informational purposes only and does not constitute an offer of insurance. Coverage is subject to underwriting, availability, and the terms, conditions, and exclusions of the applicable policy. Not all products are available in all jurisdictions. Please contact Vouch for more information.

Vouch Specialty Insurance Services, LLC (CA - 6004944 - vouch.us/legal/licenses)