For a startup Hedge Fund, you may not need workers’ compensation insurance if the only “workers’ are owners, partners, or officers. In New York the rules for partnerships, LLCs, and corporations allow executive owners of a fund to be excluded or to opt-out of workers compensation, Other states can vary from this, but generally speaking it’s pretty standard.
Before your first hire, make sure you have workers comp.
What you have to be really aware of is that when you make your first hire, you will need workers’ compensation to be in effect to comply with your state’s rules on coverage. Many new and smaller funds will often bundle their workers comp with payroll and or benefits with a PEO or payroll provider, and this is fine.
We work with a few firms like Trinet and ADP if that’s the route you’d like to go and we’d be happy to make a referral to one or more of them to loop them into the conversation. Bundling workers comp into your payroll or your entire human capital management framework does make sense from an ease of doing business perspective and as a startup fund, a lot of decisions are driven by ease, and rightly so.
But what about larger, more established firms, or when you grow and have more employees? Does bundling still make sense?
It may.
But you need to know that ease of doing business does cost more in the form of the fees you pay to your provider. You’re also putting an insurance product in the hands of a company that isn’t solely in the insurance business. As a larger firm, having your insurance handled by an insurance expert makes more sense, in my opinion. In many cases, we can do “pay as you go” type premium installments, but more importantly, we can make sure that your coverage is done right and kept up to date. Too often I have found errors made by PEOs and Payroll providers which can have costly repercussions for the insured firm. By having an insurance expert handle this part of your insurance program your hedge fund will be assured of having the right protection.
One of the most common questions I get from hedge fund managers is: “Should we include or exclude executive officers, partners, or members from our worker’s compensation policy?”
My answer is to include them.
The premium savings you get from excluding them is negligible in the whole scheme of things. Even very highly compensated individuals have executive payroll capped around $100k per year in workers comp and the rate for executive officers is very low.
If you think that a work-related injury isn’t going to happen in your office, think again. We’ve seen plenty of claims for financial service professionals injured on the job. Some are simple first-aid type injuries, others can be complex and costly. Ergonomic issues like carpal tunnel syndrome can be expensive to remediate.
And, if you think, we have a great health insurance plan, we don’t need worker’s compensation – think again. Health plans exclude claims from work-related injuries. Sometimes small claims will slip by a health insurer, but a large claim – again, like carpel tunnel will be caught by the health insurer’s screening and denied. Then what? You’re paying for the claim out of pocket. And that’s not a great scenario.
Here’s the bottom line on hedge fund workers compensation insurance.
Workers comp will cost your firm about $250 for a high-earning executive per year in New York.
It’s not worth the risk to exclude partners.
In most other states less than that. In my opinion, it’s not worth taking the risk and excluding these individuals from your workers’ compensation program and possibly ending up with a large out-of-pocket claim that could run into the tens if not hundreds of thousands of dollars.
Worker’s compensation is just one part of a protection program we cover for hedge funds. To find out more about how we can help your fund, whether you’re a startup or established the fund with all your business insurance needs, please contact me for a conversation.
