What it does
Business Income under CP 00 30 and CP 00 32 includes continuing normal operating expenses, including payroll. CP 15 10 changes that for the premises, buildings and employee groups in its Schedule:
- Payroll Expense Limitation: business income includes payroll expense only up to the number of days shown. The days need not be consecutive but must fall within the period of restoration.
- Payroll Expense Exclusion: payroll expense for the selected employees is excluded entirely.
The Schedule selects who is affected: all employees including officers, executives, management and contract employees; all employees other than those groups; all employees except named classifications; or only named classifications or employees.
Effect on coinsurance
Under the limitation option, operating expenses for coinsurance include payroll only for the number of days shown. If payroll varies during the year, the period of greatest payroll is used. This lowers the values on the Business Income Report/Work Sheet (CP 15 15) and so the required limit. Payroll expense includes wages, bonuses and incentive pay, benefits tied to payroll, FICA, union dues and workers compensation premiums.
Quoting and selling notes
- Payroll is often the biggest continuing expense. Ask whether the client would keep paying key staff during a long shutdown to retain them. Most businesses would, at least for managers and skilled workers.
- A common compromise is to protect officers and key employees for the full period and limit other payroll to 60 or 90 days.
- Explain the trade-off clearly and document the client's choice. Laid-off workforces can slow reopening.
