Business Start–Ups Can be Great Reason for Ghost Policy
Ghost policies, a comp policy for a business that has no employees and the owners opt not to be covered, seems to be aptly named – but why would anyone pay for one?
Nearly always, they are purchased by the owner of a small business who is required to have a comp policy in order to get business from larger companies, even though the smaller company has no employees. But there is another good reason to have them – business start-ups.
Get It Before You Need It
When people start their own businesses for the first time, and have no employees, they realize that they do not have to purchase a comp policy, and few do. The problems start, however, when the very first “employee” is hired. Many people assume that the occasional part time helper, who may very well be a relative, does not have to be covered.
Such situations grow more dangerous with time and the occasional part time help might turn into a full time helper. Racing to get a policy for these people after an event is a sure invitation to up close and personal meetings with the labor bureaucracy. The solution is to start off with a ghost policy. The cost, fully tax deductible, is more than justified by the protection afforded.
Owner Only Policy is Another Option
There is also the owner only policy, plus a declaration that employees, if any should appear, are also covered. Owners of new businesses have many excellent reasons to cover themselves but, in an effort to hold down start-up costs, elect not to take it. But a comp policy, for the owner, is perhaps the best protection against serious injury during the start-up period, when a loss of earnings for even a few weeks can doom the start-up.
In addition, the policy comes cheaply, since the owner, to the chagrin of many new business owners, makes little or nothing in the first year. True, the wage loss benefits wouldn’t be great, but the medical protection would be. The owner also acquires the flexibility to hire relatives for casual work with full protection from lawsuits in negligence.
Many Small Family Businesses Have No Coverage
Every comp lawyer has received phone calls from small family businesses involved with an injury. Almost always, there is no comp policy covering the person injured – often the spouse or a child – and there is no viable negligence claim. If a younger relative, under age 26 in New York, is involved the comp policy would have covered wage expectancy – which would have made maximum comp rates possible, even though wages were a quite small. And many young business owners have spouses under age 26.
So the “ghost” can become a very guardian angel for new businesses.
Author: Attorney Theodore Ronca is a practicing lawyer from Aquebogue, NY. He is a frequent writer and speaker, and has represented employers in the areas of workers’ compensation, Social Security disability, employee disability plans and subrogation for over 30 years. Attorney Ronca can be reached at 631-722-2100. [email protected]
Editor Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: [email protected].
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