THE CONSEQUENCES OF UNDER-INSURANCE OF WAGES
In many businesses, wages represent the single biggest expense. After the deduction of purchases and wages the Insured Gross Profit is quite often lower than the amount required to insure Wages. As such, getting Wages insurance wrong can have a greater impact on the survival of the business than under-insurance on Gross Profit or the omission of one or two other business expenses that, in reality, should have been insured.
The business has to either fund the shortfall in Wages cover or let staff go. This often leads to a much slower recovery process or, in some circumstances, the failure of the business. If staff are let go, one of the most important assets of the business is lost, often to a competitor who benefits from another company’s investment in training and experience.
In some cases, bad publicity, industrial action and/or customer backlash can occur. The damaging consequences of under-insuring wages cannot be over-emphasised.
One thing that is certain is that the person who made the decision not to insure Wages adequately is not thanked, and despite some saving made in the past, have lost their position due to the fact that they put the business at risk by their choice of not fully insuring Wages.