HR issues can be a major source of insurance claims for businesses!
Think about this for a minute:
- The average cost of a discrimination claim is $125,000.
- 25% of discrimination judgments exceed $500,000.
- In 2019, 11, 283 sexual harassment claims were filed with the Equal Employment Opportunity Commission
- Nearly half of all workers’ compensation claims are related to substance abuse
Have you taken the steps needed to lessen the likelihood that your entity or business is added to those statistics? Have you examined your HR policies to protect yourself from unnecessary and high-costing claims?
At Baily Insurance Agency, I specialize in commercial insurance and have worked in this industry since 2003. When I meet with a prospective client for the first time, we always touch on HR issues.
And many prospective clients come to me with higher insurance premiums due to claims that were actually preventable. Those companies just didn’t know how important it was to tighten up their HR policies. And most of them don’t know where to begin.
Are you confident that you have HR policies in place that help your entity or business reduce and even prevent insurance claims?
In the following article, I identify the 5 most common HR practices to lessen the likelihood of insurance claims. By nailing down these 5 practices, you can greatly lessen the likelihood of an HR claim against your company. In this article, we discuss:
- Harassment training
- Employee manuals
- Hiring procedures
- Drug testing policies
- Termination protocols
1. Harassment Training
Harassment in the workplace is an enormous problem! The Equal Employment Opportunity Commission has 76 workplace harassment claims filed every day! And for small to mid-sized businesses, 19% of harassment claims result in litigation that averages $125,000 per claim.
Because of the prevalence and high-cost of these claims, insurance companies want businesses that they insure to require harassment training for their employees annually. Often the insurance company itself or a risk management firm can provide the training for your business.
So, why is this training important? How does it benefit you?
1st Party Harassment
If one of your employees harasses another employee or a customer, your company is liable. This is called first party harassment.
If a harassment claim is made, your company can be held responsible for court costs, settlements, and other costs associated with the claim.
When your employees are required to attend harassment training, they can not allege ignorance about your harassment policies. It also protects you because you have taken the necessary steps to educate your employees about issues related to harassment.
3rd Party Harassment
Something many employers don’t know is that they are also liable if their employee is harassed by a third party at your place of business.
For instance, if your vending machine supplier harasses your office staff when filling your machines, you could be open to a claim. If you, as the employer, don’t deal with the harassment, your employee can file a claim against you.
Harassment training will equip you, as the employer, to deal with harassment claims. It will help you advocate on behalf of your employees and educate your employees about behaviors related to harassment.
Action item:
Talk with your insurance agent or a risk management firm about scheduling harassment training for your employees. Require ALL employees to complete the training.
(Even if, and maybe especially if your employees are a little “rough around the edges” and likely resistant to this type of training. We have the ability to keep it light, but make it relevant.)
2. Employee Manuals
In terms of employee manuals, most businesses seem to have one of two problems:
- Their employee manual is severely outdated
- They have no employee manual at all
Both of these scenarios create an environment that is susceptible to a claim. Without a current employee manual, your business will lack clarity in how you deal with employees.
A current employee manual makes it clear to your employees what they can expect, and it also guides you in the way that you deal with disciplinary issues, promotions, and terminations.
Businesses often have claims filed against them by employees who feel they have been discriminated against in any one of those above-mentioned areas. This would be less likely if the business had simply required each employee to acknowledge that they are familiar with the policies in their current employee manual.
Otherwise, you are wide open for a claim to be filed against your business.
Discrimination Claims
For instance, let’s imagine you have an employee who is not chosen for a promotion. You know it is because of mediocre performance, tardiness, or some other valid reason.
Without clear policies in place outlining your expectations of your employees, your employee may claim that you did not promote them because of their gender, their ethnicity, their age, or some other reason they believe is discriminatory.
Wrongful Termination Claims
Or maybe you terminate an employee because of continual tardiness. Without a clear attendance policy in your employee manual, your employee may suggest they are being terminated for another reason.
With a clear policy and documentation, your employee will have no room to claim wrongful termination.
Having an updated employee manual and requiring your employees to acknowledge they have read and understood your policies provides significant protection for your business.
Action item:
If you have an employee manual, have a risk management firm review it. If you don’t have a manual, place a high priority on creating one. Also, require all employees to sign off saying they have received the manual, have read it, and understand what is written in the manual.
3. Hiring procedures
Does your business have well-thought-out hiring procedures? Good hiring practices can stop claims before they happen.
How is this so?
Many businesses hire individuals without enough information to ensure that the individual is physically able to do their job. Inadvertently your business can be exposed to extra risk by hiring them.
The two most practical steps you can take to protect your business when hiring a new employee is through a pre-employment physical and drug test.
Pre-employment physical
Many businesses – especially businesses in industries like construction, transportation, or manufacturing – require very physical work from their employees. These industries have high numbers of workers’ compensation claims.
Requiring a pre-employment physical before hiring a potential employee reduces the risk that an employee is coming to you with a pre-existing condition likely to result in a workers’ compensation claim.
For instance, if you are hiring a new employee who has suffered back injuries at work in the past, a pre-employment physical can uncover that issue. The doctor can decide if the potential employee is at risk for reinjury.
The doctor’s recommendation can help you decide if hiring this person would or would not be a good decision for your business.
If you don’t require a pre-employment physical and a new employee is reinjured on the job, you will have to file a workers’ compensation claim, find a replacement for the employee, and potentially lose productivity in the meantime. In Pennsylvania a serious work comp claim can cost an employer as much as $60,000. (And in some cases even more).
Pre-employment drug test
Requiring potential hires to pass a pre-employment drug test is another way to protect your business from unnecessary claims. On average, each substance-using employee will cost a business $7,000 a year.
Having pre-employment drug testing in place will often keep chronic drug users from even applying for employment with your business.
Here is a deeper look at the impact of substance abuse in the workplace.
- Higher absenteeism – Substance abusers are absent 16 times more often than other employees
- Workplace accidents – Drug and alcohol users are 3.6 times more likely to cause an accident in the workplace
- Higher numbers of workers’ compensation claims – 38% to 50% of all workers’ compensation claims are related to the abuse of alcohol or drugs in the workplace
- Lower productivity – Drug and alcohol users work at only two-thirds of their productivity
If you don’t have a pre-employment drug testing policy in place already, you should get one in place right away! This adjustment can protect your business from numerous consequences of substance abuse in the workplace.
Action item:
Work with your insurance agent or a risk management specialist to establish your hiring policies. Make sure that your policies address issues like pre-employment physicals and drug testing for potential hires.
4. Drug testing policies
While pre-employment drug testing is a must, policies that outline ongoing drug-testing can create even greater protection for your business.
Consider these questions:
- Does your business have pre-employment drug testing as a requirement for potential hires?
- Does your business require ongoing drug testing or random drug testing?
- Are the consequences of drug use outlined in your employee handbook?
If you cannot answer “yes” to each of these questions, you need to address these issues.
Ongoing drug testing
To protect your business from a discrimination claim, you need to have your company’s drug testing policy in place. If not when you suspect an employee of substance abuse in the workplace, it will be more difficult to require the employee to have a drug test.
Without a policy in your employee manual, your employee may claim that they have been singled out when you request the drug test. This situation can result in a discrimination claim against your business.
Consequences of drug use
Having a clear policy of what will happen if an employee is found to be abusing a substance on the job will also protect you from discrimination claims. These policies leave no question about what will happen when a person is caught abusing on the job.
For instance, if a person is caught using will they be terminated immediately? How will their compensation be impacted? What are the specifics about how your company will handle this situation?
A clear policy allows everyone – both employees and employer – to know what will and will not be tolerated at your business.
Action item:
Determine what your drug testing and drug use policies will be for your business. Make sure these are well understood by your employees and that they are documented in an employee manual.
5. Termination protocols
Another area that businesses are vulnerable to discrimination claims is in the area of disciplinary action and termination.
Does your business have clear guidelines in place to help you deal with unacceptable employee behavior?
Here are a few questions to help you think about this area:
- Does your business have a process for documenting employee behavior?
- Does your business have expressed policies about tardiness and attendance?
- Does your business regularly evaluate employee’s job performance?
- Does your business document poor performance of job duties?
These are just a few examples of policies you need to proactively put in place.
Discrimination Claims
Without these types of policies, you are again open to litigation and a claim if you terminate an employee. Even if the employee is negligent in their work, without proper documentation, you leave yourself open to a claim.
Here’s an example of what this may look like:
You have an employee who is chronically late to work, frequently makes mistakes in his work, and is not as productive in his work as he needs to be. He is also in his late fifties.
Your team agrees you need to let him go, because of his tardiness and lack of acceptable work performance. So, you fire him.
Your employee claims, however, he is being unjustly terminated due to his age. In fact, just a few weeks ago, one of his coworkers had commented that he was slipping in his old age. He’s sure you are firing him because he’s rounding the corner to 60.
While his termination had nothing to do with his age, because of a lack of documentation and employee reviews you have no real evidence that his termination was due to tardiness and job performance.
You may find your business in the middle of a court case when the employee files a discrimination complaint against you.
Action item:
Firm up your businesses discipline procedures including employee reviews, documentation processes, and employee performance expectations. This step will help protect you when terminating an employee is necessary.
I’m concerned! My business is vulnerable to a claim! What can I do?
One of the best decisions our clients make is working with a risk management firm to thoroughly examine their policies. Even though hiring a risk management firm is an extra expense, it usually results in savings by eliminating claims before they happen.
At Baily Insurance Agency, we partner with East Coast Risk Management to help our clients close any HR gaps that might result in an insurance claim. Risk management firms help their clients:
- Establish hiring and termination protocols
- Review employee manuals
- Provide harassment training for employers and employees
- Execute drug testing policies
While many risk management firms will provide a list of recommendations, Baily Insurance partners with East Coast Risk Management because they help clients to implement the recommendations they make. This saves time and reduces the frustration that can result from being given a task outside of your area of expertise.
While many insurance agencies claim that they are bringing valuable tools to their clients’ insurance programs, Baily Insurance helps our clients in practical ways to help them reduce costs and prevent claims. By partnering with firms like East Coast Risk Management, we bring extra resources to all of our clients.
If you would like to learn more about building a successful insurance program for your business, our article, The 5 Steps to Creating an Effective Commercial Insurance Program, will help you identify areas that your business needs to examine before your next insurance renewal.
After reading that article, if you are looking for a team of insurance professionals who can help you establish an insurance program that leads to long-term savings, give us a call. We can get started right away on a plan to help you reduce your insurance costs and create a safer, more productive work environment.
