Why Defined Earnings are Very Significant
There is not a standard "ideal" when it comes to defined earnings definitions. As long as the employer and employee clearly understand the defining terms and it is communicated clearly to the employee than there is no problem. I want to discuss potential employer liability issues if this area of definition is not clear.
This applies to sales people on a base salary plus commission, hourly employees with "regular" overtime, "regular" bonuses, "annual performance" bonuses etc.
So let's deal with the $50,000 a year salary based sales person with an average of an additional $50,000 a year in commissions. With life insurance if it is a defined amount of coverage, it is not a problem. Let's suppose it is four times salary. That would either be $200,000 of benefits or $400,000 of Life and ADD depending on how the benefits contract is written. The insurance company will usually let the employer decide how "earnings" are defined.
An employer who only insures base earnings, while the employee is expecting base plus commission, are thinking two different figures. It becomes worse with a long term disability claim.
If the LTD insured amount is 70% of earnings, the base is insured for $2916 a month of benefit. The employee may be expecting $5826 based on commissions included. If there is a misunderstanding this can turn into a financial nightmare for all parties.
The same can be said for an hourly employee who may have a base of $50K yet have average overtime of an additional $25,000. No one is exempt.
Another problem occurs when employers have bonuses, overtime etc, written into their agreements, then fail to report the bonuses or overtime to the insurance company who carries the benefit.
This all matters at claims time and unfortunately cannot be corrected at claims time.
Contract employees are a completely different topic. It may very well be time to review your processes and procedures. Call John today at 519-622-3347 for a confidential review of your program.
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