Minimum Payroll Increases Impact Business Insurance Policies
How Minimum Payroll Increases Impact Business Insurance Policies
In Maryland, recent changes in minimum wage laws have resulted in minimum payroll increases rating business insurance policies. These changes, particularly in workers’ compensation and general liability insurance, impact the cost of coverage for many businesses. For business owners, officers, and executives, this means keeping a close eye on how payroll adjustments can increase insurance premiums.
Let’s explore how these minimum payroll increases for insurance rating are affecting Maryland businesses and how you can manage these changes.
Why Minimum Payroll Is Important for Insurance Rating
Insurance companies use payroll to assess risk exposure and calculate premiums for both general liability and workers’ compensation insurance. Payroll represents a significant factor in determining the size of your business and the level of risk associated with employee injuries or liabilities.
When Maryland’s minimum wage goes up, businesses must adjust their payrolls to comply with the law. This increase affects the minimum payroll thresholds set by insurers for business owners, officers, and employees, which in turn impacts how insurance premiums are calculated.
Minimum Wage Increases in Maryland and Their Impact on Workers’ Compensation
In Maryland, workers’ compensation insurance provides essential coverage for employee injuries that occur on the job. The premiums for this coverage are directly tied to a business’s payroll. For workers’ comp purposes, the state sets minimum payroll limits for business owners, which increase when the minimum wage rises.
Maryland’s Minimum Wage in 2024
Maryland’s minimum wage rose to $15.00 per hour for most employers in 2024, with smaller businesses catching up shortly after. This wage hike means that businesses must pay their employees more, and for insurance purposes, the payroll used to calculate workers’ compensation rates will increase as well.
Also, with the consistent wage increases accross the nation, the minimum owner / officer rating payroll has risen to around $72,800 according to the National Council on Compensation Insurance (NCCI). Even if an owner’s personal salary doesn’t change, the minimum payroll for rating their workers’ compensation policy will increase with inflation. This will lead to higher premiums. The insurance companies assume that the owners of a business are making at least this amount to own and operate a business. This can be in direct payroll, profit distributions. or a combination of these and company paid benefits.
In essence, workers’ comp premiums are rising for many Maryland businesses as a direct result of minimum wage increases. While this may seem like an unwelcome financial burden, it ensures that injured employees receive the compensation they need, and businesses are adequately protected.
General Liability Insurance: How Minimum Payroll Affects Maryland Business Owners
General liability insurance covers a business for claims of bodily injury, property damage, and other risks. Like workers’ comp, the premiums for this type of insurance can also depend on payroll levels. When Maryland businesses experience payroll increases due to wage law changes, their general liability insurance premiums often rise as well.
For many Maryland business owners, this is especially relevant for officers or executives who may have a minimum payroll threshold applied to them by the insurance company. The minimum payroll level for business owners and officers in Maryland might be adjusted to reflect higher wage standards, even if the actual salaries of these individuals remain the same. We have been seing he minimum payroll thresholds increasing by about 30% (from about $25,000 to about $33,000) since Maryland increased their minimum wage to $15 per hour.
By setting a higher minimum payroll threshold, insurers ensure that Maryland businesses have adequate coverage, but this also leads to increased costs.
How Are Maryland Businesses Affected?
Several industries in Maryland are particularly affected by minimum wage and payroll increases. Especially those with lower-wage workers or high employee counts. These include:
- Hospitality – Restaurants, hotels, and other hospitality businesses employ a large number of hourly workers. As the minimum wage rises, so do the insurance premiums for workers’ comp and general liability.
- Construction – Construction companies often operate with higher risks, which already increases their insurance costs. Now, rising payroll levels due to minimum wage increases are further elevating workers’ comp premiums in Maryland.
- Retail – Retailers, particularly smaller ones, are seeing their insurance costs rise as a result of both increased wages and higher payroll levels used to rate their insurance policies.
Even smaller businesses that employ just a handful of workers are likely to feel the impact of these changes. The higher the payroll, the more significant the increase in premiums for both workers’ compensation and general liability coverage.
How Maryland Business Owners Can Manage Insurance Costs
Rising insurance premiums due to minimum payroll increases might seem like an inevitable cost of doing business, but there are strategies you can use to mitigate the impact:
1. Classify Employees Correctly
One way to manage costs is by ensuring that employees are correctly classified. Workers’ compensation premiums are calculated based on the risk levels associated with each job. Maryland business owners should review their classifications regularly to avoid paying higher rates for low-risk jobs.
2. Consider Safety Programs
Investing in workplace safety measures can lower your workers’ comp premiums over time. Maryland businesses that prioritize safety can reduce the number of workplace injuries. This leads to fewer claims and, in turn, lower premiums.
3. Work with a Trusted Insurance Agent
An experienced insurance agent, such as those at Huff Insurance, can help your businesses navigate the complexities of changing minimum payroll requirements. We can assist you in finding the best policies, negotiating better rates, and ensuring you’re not overpaying for coverage.
4. Explore Pay-As-You-Go Workers’ Comp Policies
In Maryland, some insurance companies offer pay-as-you-go workers’ compensation policies. These policies allow businesses to pay premiums based on actual payroll rather than an estimated amount. This can help smooth out fluctuations due to minimum wage increases. This method also smooths out the audit process as the company already knows the annual payroll number at the end of the policy term.
Conclusion: Stay Prepared for Minimum Payroll Increases in Maryland
As Maryland’s minimum wage continues to rise, businesses must be prepared for the ripple effects on their insurance policies. Understanding how minimum payroll increases affect your general liability and workers’ compensation premiums is crucial to keeping your business protected without breaking the bank.
At Huff Insurance, we help Maryland business owners navigate these changes by providing personalized guidance and policy reviews. If you’re concerned about how minimum wage increases will impact your insurance premiums, contact us today to get started.