Payroll Services Insurance

Payroll Service Business Insurance is an essential part of running a payroll services business. Without the right protection, the company could be at risk in the event of a lawsuit or other liability.

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Payroll Service Businesses Insurance

Payroll Service Businesses

Payroll Service Business Insurance is an essential part of running a payroll services business. Without the right protection, the company could be at risk in the event of a lawsuit or other liability.


What is Payroll Services Insurance?

The payroll outsourcing industry is a vast playing field where a business's essential accounting tasks are given over to third-party companies specializing in payroll, taxes, W2s, 1099s, and human resources. As one of these outsourced tasks is the payroll process. These days, many major corporations outsource important business activities. While an accounting department may be able to handle a high volume of employees or complex payroll issues, the costs of maintaining additional staff, computer hardware, and supervision are not justified. In these cases, outsourcing can improve efficiency and save valuable time and money.

Given the nature of the services provided, payroll companies handle sensitive information about clients and their employees, making it important to purchase a bare minimum of Professional Liability Insurance and Cyber Insurance. This type of insurance will protect the Payroll service provider if it is sued for errors in payroll calculations, paying an employee correctly, or not paying the correct payroll taxes. The high cost of claims or defending a lawsuit can end up putting the company out of business.

But there are more risks than what meets the eye. In such a case, a policy bundle that covers various risks can be christened as Payroll Service Insurance. (And various online articles use this term to talk about Payroll Insurance!) Let us see what kinds of risks a typical Payroll Business can face.

What Risks and Liabilities are Associated with Payroll Businesses?

A large payroll service business could be a target for lawsuits or can be sued for employment practices, cyber-attacks, or professional negligence. This is especially true for a payroll company that inadvertently caused employees to lose out on pay or benefits, such as health insurance, since the professional liability would respond.

  • The company may also be sued if it fails to report wages correctly, which could result in tax issues for employers and employees. This is especially true when IRS audits penalize client companies for errors in taxes owed. These situations can result in clients suing your business. 
  • Slip and fall accidents can happen in the office. If an employee is injured, the payroll service company is liable to pay for the employee's medical care. If an injury results in lost wages, the business may also be liable for paying those wages.
  • The company may also be responsible for injuries or property damage suffered by customers or visitors to the business, especially if there was a condition present that caused or contributed to the accident. Some of these incidents, for example, include falling on the wet floor, an employee spilling a drink on a client's laptop, or a chair breaking with a guest sitting in it. Even when the business is not at fault in many cases, it can be liable for damages, which include the cost of medical bills, pain and suffering, and loss of income for the injured party.
payroll service file on desk
  • The company can also be liable for the negligence of its employees. If an employee driving a company car causes a car accident and results in injury and property damage, the business will be liable for damages, including economical loss,  medical treatment, and even legal cases leading to imprisonment (if a driver was under the influence).
  • Physical damage to owned property by events like fire, theft, windstorm, or vandalism will incur the cost of repair or replacement. If this happens, the business will be relieved to be paid for the coverage amount insured for the property.

Coverages Included Under Business Insurance for Payroll Service

Business Insurance for Payroll Services provides coverage for a variety of potential losses. 

The most common types of coverage for Payroll Service Business Insurance include:

Professional Liability Insurance

Payroll processing and consulting service involves high risk for the organization. While employees in the client's company may not sue a payroll service provider for negligence in the service provided, the company is still liable for any mistakes made in the payroll processing that cause a financial loss to the client company and can be sued by the latter and found at fault. Professional Liability Insurance (also known as E&O Insurance) helps protect the business from lawsuits and claims in case of negligence with respect to errors in wage, tax, and employee benefits. This coverage includes professional errors and omissions, defamation, invasion of privacy, and more. The insurance also provides legal representation to defend the business owner. This coverage does not cover liability for physical bodily injury or property damage caused by the business, as this is covered by general liability coverage.

General Liability Insurance

General Liability Insurance provides coverage for bodily injury and property damage claims and lawsuits arising from the business's operations. For example, suppose a client is injured at the office due to a slip-and-fall and files a suit, regardless of the merits of the suit. In that case, General Liability Insurance will provide a defense for the insured and pay the court-awarded damages and expenses associated for covered incidents. General Liability Insurance should be a staple policy for any brick-and-mortar business where the chance of accidents exists. 

Workers' Compensation Insurance

Workers' Compensation Insurance provides coverage for injuries to employees that occur on the job. The employer is responsible for paying the employee's medical bills, lost wages, and other expenses related to these injuries. Rather than meeting these obligations out of pocket, most businesses opt for a workers' compensation policy. In addition, this type of insurance will can pay benefits for permanent disability resulting from an injury sustained on the job. It is also important to note that most states make it mandatory for companies to have Workers' Comp Insurance.

Commercial auto insurance

Commercial Auto Insurance provides coverage for vehicles used in the course of business. This type of insurance protects against liability claims, physical damage to owned vehicles, and other coverage that the state may mandate. Commercial auto insurance coverage includes:

  • Bodily injury liability, which pays for injuries to others in the event of an at-fault accident.
  • Property damage liability covers damage caused by your vehicle to other people's property (such as cars) when at fault for the accident.
  • Personal injury protection, in some states, may be referred to as "No-Fault," which covers medical expenses for the passengers resulting from an accident.

Note that workers' compensation insurance would cover a company employee injured while driving the company car as the primary coverage first.

Commercial property insurance

Commercial property insurance provides coverage for buildings, equipment, and other physical assets owned by the business. It protects against fire, theft, vandalism, wind, hail, and other perils that could damage these items. Business interruption insurance can be included under the property policy. It helps reimburse for lost income when covered damage to the building causes the business to shut down.

Employment Practices Liability (EPL)

Employment Practices Liability insurance is essential for payroll companies. It safeguards them from lawsuits related to employment issues, like failure to add an employee to the health insurance, discrimination, or wrongful termination. Payroll firms often handle sensitive employee data, and EPL insurance covers legal defense, settlements, and judgments for covered incidents, reducing financial risks. It offers peace of mind, allowing payroll companies to focus on their core operations in a litigious environment.

Cyber Insurance

Cyber insurance has now become extremely critical for payroll businesses to minimize the costs incurred from a cyber attack. It has become crucial since the summer of 2023, when a Russian hacker group breached Zellis, a reputed payroll company, in a MOVEit Transfer zero-day attack with major clients like BBC British Airways being affected. Besides the ransom amount being demanded, your business will also face litigation and reputation damage in the market. Therefore, it makes perfect sense to back up your financial protection arsenal with this valuable insurance coverage. 

What Does it Cost for Payroll Service Insurance?

The cost of business insurance coverage for payroll services is based on several factors, including the type of insurance, limits, revenue size of the company, and the values needed for property insurance. Location, age, and construction type of the building also play a part in total insurance costs. Generally, it costs more to insure larger businesses because they have more liability exposures and assets that could be damaged or stolen. The premium costs have a wide range, and what insurance we're talking about? For general liability, a small payroll firm may pay $100 and up per month. For companies with a higher employee headcount, the premiums can reach tens of thousands of dollars a year for all the insurance mentioned here. 

The cost of business insurance coverage for payroll service can also be higher if a company has a poor financial record. This could include late payments, unpaid debts, and other issues that indicate a lack of responsibility.


Payroll services insurance is important because it can help protect the company from the financial consequences of liability claims, litigation, employee injury, and property losses. For a payroll service provider, it is important to understand what coverage is required and how much it costs. This way, one can make an informed decision about whether or not to purchase the insurance.

When deciding to buy coverage, one should ensure that their business details, such as payroll and revenue amounts, are correct so money won't be owed at audit. General Liability and Workers' Compensation policies are always audited to ensure the premium paid is adjusted for the year based on real numbers, not just projections. An audit can result in an additional premium owed and, sometimes, a return premium issued.

If you are looking for payroll services insurance, request a quote at

Frequently Asked Questions about Payroll Service Insurance

In most cases no, but state and local business laws may require general liability and workers' compensation. Even if not legally required, having payroll service insurance is highly recommended for anyone in the industry. It not only safeguards your business but also builds trust with clients, as they know you're prepared to handle unexpected issues professionally.

Yes, there are various policies available, and they can be customized to your specific business needs. The right combination depends on your services and potential risks.

The coverage amount needed depends on the size and nature of your business. A careful evaluation of potential financial losses from payroll errors, legal claims, or data breaches can help determine the appropriate coverage level. Many insurers conduct an audit at the end of your general liability or worker's compensation policy term to adjust premium amounts based on real numbers.

Payroll companies need to purchase Cyber insurance to cover data breaches and other cyber threats, especially in today's digital age. This coverage can assist in handling the financial and legal consequences of a data breach or extortion incident.

Consider consulting with our agents at to determine your company's insurance needs and obtain quotes. Give us a call or leave a message on our site.