When you purchase general liability insurance in connection with your business operations, the cost of your insurance premium depends in large part on the level of business you conduct each year in addition to the type of work your business performs. Those involved in high-risk industries such as construction or excavation typically pay more. To ensure you don't pay more than you have to, it's important to understand general liability payroll limitations for partners and owners.
General Liability Insurance
General liability insurance is a standard insurance policy many business owners choose as a means to protect themselves and their businesses. A general liability policy protects against possible financial losses which may occur as a result of litigation brought on by error, omission or negligence on the part of the business owner or employees. You may obtain a general liability policy whether you are self-employed as a sole proprietor or the head of a multimillion dollar organization.
For the purpose of determining premium, the insurance provider calculates the amount of business income or total wages paid during the coverage period. These totals help the insurance company gauge the level of business conducted during the coverage period and assign a level of associated risk. Most insurers allow a payroll limitation by excluding the salary of business owners, sole proprietors, executive officers and partners from payroll totals, according to insurance and risk management adviser, International Risk Management Institute. The limitation amounts vary depending on the state and the nature of the business.
A partnership is an arrangement between two or more individuals and may be an informal verbal agreement or it may be filed as a legal entity through the Secretary of State's office, by a local business attorney or a public notary. The IRS notes partnerships must file annual returns documenting income and losses, and each partner must report a share of the partnership's income and losses on his personal tax return. Each partner's payroll is eligible for exclusion up to the maximum allowed by state law for general liability insurance.
Verifying Payroll Limitations
Businesses must maintain adequate record of the payroll allocated to each partner throughout the year. Many insurance providers conduct routine audits to verify the level of payroll during the policy period. Maintaining accurate records helps facilitate a smooth audit process and may help guarantee your partnership qualifies for the full payroll limitation.
Sara Melone is a mother of three and a graduate of UNH. With prior careers in insurance and finance, photography, as well as certifications in fitness and nutrition, Melone draws directly from past experience and varying interests. She contributes with equal passion to birth journals, investment blogs, and self-help websites.