Employment Practices Liability: HR Policies and Workforce Risk Factors

Employment Practices Liability Insurance (EPLI) protects your company from claims arising from employment-related incidents such as wrongful termination, discrimination, harassment, wage and hour violations, and retaliation. In today's litigious environment, EPLI has become essential for businesses with employees.

Yet many business owners and HR professionals don't fully understand what affects EPLI premiums or how to manage these costs. Employment practices risks vary dramatically by industry, company size, and HR practices—and much of this variation is within your control.

Understanding the key rating factors for EPLI insurance will help you both reduce premiums and create a stronger workplace culture.

Why EPLI Insurance Matters

The employment litigation environment has never been more challenging:

Increasing Litigation:

• More employment-related lawsuits filed annually
• Higher average settlement amounts
• Longer duration of litigation
• Regulatory investigations alongside private litigation

Regulatory Scrutiny:

• Department of Justice investigations into workplace harassment
• EEOC (Equal Employment Opportunity Commission) enforcement
• State labor board investigations
• Wage and hour enforcement by state AGs
• Sexual harassment and misconduct investigations

Evolving Standards:

• Me Too movement raising awareness of harassment and misconduct
• Remote work bringing new compliance challenges
• Expanded definitions of discrimination and retaliation
• Stricter wage and hour regulations

Financial Impact: A single wrongful termination or harassment claim can cost $100,000-$500,000+ in defense costs and settlements, even for smaller companies.

Rating Factor 1: Number of Employees

The size of your workforce is the primary exposure metric for EPLI insurance.

Employee-Based Premium Calculation

EPLI premiums typically scale with the number of employees:

Premium Structure: Premium = (Per-Employee Rate × Number of Employees) + Base Premium

Examples of Per-Employee Rates (varies by industry and risk):

Service Industries (Restaurants, retail, hospitality):

• Per-employee rate: $2.50-$5.00
• 25 employees: $62.50-$125 annually (modest base premium)
• 50 employees: $125-$250 annually
• 100 employees: $250-$500 annually

Professional Services (Consulting, law, accounting):

• Per-employee rate: $1.00-$2.50
• 25 employees: $25-$62.50 annually
• 50 employees: $50-$125 annually
• 100 employees: $100-$250 annually

Manufacturing (Mid-risk):

• Per-employee rate: $3.00-$6.00
• 25 employees: $75-$150 annually
• 50 employees: $150-$300 annually
• 100 employees: $300-$600 annually

Total Premium Examples (full coverage):

10 Employees: $500-$1,500 annually 25 Employees: $1,250-$4,000 annually 50 Employees: $2,500-$7,500 annually 100 Employees: $5,000-$15,000 annually 250 Employees: $12,500-$37,500 annually 500 Employees: $25,000-$75,000 annually

Why Employee Count Indicates Risk

More employees create more EPLI exposure because:

• More interactions: More employee-manager interactions create potential conflicts
• More variations: Larger teams have more diverse workforce with varied needs
• More complexity: Larger HR functions manage more complex situations
• More potential claimants: Larger employee base = more potential plaintiffs
• Statistical likelihood: Larger organizations statistically more likely to have claims

Example: A 50-employee company statistically has 5-10x the potential for employment claims compared to a 10-employee company, all else equal.

Seasonal or Temporary Employees

How you count employees matters:

• Full-time employees: Counted fully in headcount
• Part-time employees: Often counted as 0.5 or pro-rated
• Seasonal employees: May be counted separate from regular employees
• Independent contractors: Usually not counted (not covered by EPLI)
• Temporary staffing firm employees: May be covered under temporary agency agreement

What You Can Control:

• Accurately report employee counts to underwriter
• Document full-time vs. part-time composition
• Manage employee turnover to optimize staffing costs
• Use staffing firms for temporary workers (liability transfers to them)
• Plan workforce levels knowing they affect premium

Rating Factor 2: Industry Type and Workforce Characteristics

Your industry determines baseline EPLI risk because different industries face different employment litigation patterns.

Industry Risk Classification

Lower-Risk Industries (Lower premiums):

• Professional services (accounting, law, consulting)
• Technology and software development
• Business services
• Manufacturing (non-hazardous)
• Finance and banking
• Insurance and real estate

Moderate-Risk Industries (Moderate premiums):

• Healthcare (non-hospital)
• Education and training
• Utilities and government
• Transportation and logistics
• Wholesale and distribution

Higher-Risk Industries (Higher premiums):

• Retail and e-commerce
• Hospitality (hotels, restaurants)
• Food service and catering
• Warehouse and distribution centers
• Call centers and customer service
• Seasonal and outdoor work

Highest-Risk Industries (Highest premiums):

• Healthcare systems and hospitals
• Large restaurant chains
• Large retail operations
• Construction and trades
• Companies with primarily minimum-wage workers
• Companies with high international workforce

Why Risk Varies by Industry

Different industries face different employment litigation patterns:

High Turnover Industries:

• Hospitality and food service: 75%+ annual turnover
• Retail: 50-75% annual turnover
• Customer service centers: 40-60% annual turnover
• Risk: More employees = more terminations = more potential wrongful termination claims

Wage and Hour Risk Industries:

• Retail with many part-time workers
• Restaurants and food service
• Warehouse and fulfillment centers
• Risk: Complex scheduling and wage regulations create violations

Harassment and Discrimination Risk Industries:

• Hospitality and food service
• Healthcare
• Education
• Risk: Power dynamics and close working relationships increase likelihood

Gender/Diversity Industries:

• Male-dominated trades and construction
• Female-dominated hospitality
• Risk: Gender-based harassment and discrimination claims more likely

Migrant Worker Industries:

• Agriculture and farming
• Seasonal work
• Risk: Language barriers, wage violations, discrimination

What You Can Control:

• Improve HR practices even within higher-risk industries
• Implement strong harassment and discrimination policies
• Train managers on wage and hour compliance
• Document employment decisions carefully
• Address conflicts quickly before escalation

Rating Factor 3: HR Policies and Documentation

The quality and comprehensiveness of your HR policies and documentation significantly affects EPLI premiums.

Written HR Policies

Presence of Documented Policies (Lower risk):

• Employee handbook or HR manual exists
• Covers key employment practices
• Accessible to all employees
• Updated periodically
• Premium Impact: May earn 10-20% credit

Comprehensive HR Policies (Lowest risk):

• Detailed handbook covering all key areas
• Anti-discrimination and anti-harassment policies
• Clear complaint and investigation procedures
• Progressive discipline policy
• Wage and hour compliance procedures
• ADA accommodation procedures
• Premium Impact: May earn 15-25% credit

Limited or No Policies (Higher risk):

• No formal handbook
• Inconsistent or unwritten practices
• Managers making ad-hoc decisions
• No complaint procedures documented
• Premium Impact: May incur 15-25% surcharge

Key Policy Components

Underwriters specifically look for:

Anti-Discrimination and Anti-Harassment Policy:

• Clear statement against harassment and discrimination
• Coverage of all protected classes
• Examples of prohibited conduct
• Complaint procedures and assurance of no retaliation
• Investigation procedures
• Impact: Critical for favorable rating

Complaint and Investigation Procedures:

• Clear process for reporting complaints
• Multiple reporting channels (manager, HR, hotline, etc.)
• Confidentiality protections
• Timely investigation procedures
• Documentation requirements
• Impact: Demonstrates proactive complaint handling

Progressive Discipline Policy:

• Clear discipline procedures
• Documentation requirements for manager
• Progressive steps (warning, suspension, termination)
• Exception for serious violations
• Impact: Defends against wrongful termination claims

Wage and Hour Compliance Procedures:

• Proper classification of exempt vs. non-exempt
• Accurate time tracking
• Break and meal period compliance
• Overtime calculation and payment
• Record retention
• Impact: Prevents wage and hour violations

ADA Accommodation Procedures:

• Process for requesting accommodations
• Interactive process for determining accommodations
• Documentation of interactive process
• Regular review of accommodations
• Impact: Demonstrates ADA compliance effort

At-Will Employment Statements:

• Clear statement that employment is at-will
• Disclaimer that handbook doesn't create employment contract
• State-specific language where required
• Impact: Supports at-will employment defense

What You Can Control:

• Develop comprehensive HR handbook if one doesn't exist
• Review handbook annually and update policies
• Document all major HR policies
• Communicate policies clearly to all employees
• Ensure consistent application of policies
• Provide policies in multiple languages if applicable

Rating Factor 4: Employee Training and Education

Underwriters evaluate what training you provide to managers, supervisors, and employees.

Annual Training Programs

Comprehensive Training (Lower risk):

• Annual training for all managers
• Covers: harassment, discrimination, ADA, wage-hour, retaliation
• Training documentation and attendance records
• Regular updates and refreshers
• Premium Impact: May earn 5-15% credit

Basic or Ad-Hoc Training (Higher risk):

• Training only during hiring
• Limited topic coverage
• No regular refreshers
• Poor documentation
• Premium Impact: Standard to elevated

No Training (Highest risk):

• No formal training program
• Managers receive no instruction on employment law
• Premium Impact: May incur 15-25% surcharge

Specific Training Topics

Underwriters look for training on:

Harassment and Discrimination Training:

• What constitutes harassment and discrimination
• Company policy on zero tolerance
• Examples and scenarios
• How to report and respond to complaints
• Consequences for violating policy

Wage and Hour Training:

• Proper classification of employees
• Overtime calculation
• Break and meal period rules
• Record-keeping requirements
• Common wage-hour violations to avoid

Retaliation and At-Will Employment:

• Protection of employees for reporting concerns
• Prohibition on retaliation
• At-will employment principles
• Exceptions to at-will (public policy, contract)

ADA and Disability Accommodation:

• Basics of ADA
• Accommodation request procedures
• Interactive process overview
• Common reasonable accommodations
• Documentation requirements

What You Can Control:

• Implement annual mandatory training for all managers
• Document training attendance and completion
• Use professional training resources or consultants
• Tailor training to your industry and company
• Create training records as defense evidence
• Update training annually based on new laws
• Include frontline supervisors in training

Rating Factor 5: Employee Turnover and Retention

Your company's employee turnover rate significantly affects EPLI risk.

Turnover Impact on Risk

Low Turnover (Lower risk):

• Annual turnover less than 10%
• Stable workforce
• Strong employee engagement
• Lower probability of termination disputes
• Premium Impact: May earn 5-10% credit

Moderate Turnover (Standard):

• Annual turnover 10-25%
• Normal for most industries
• Standard premium rates

High Turnover (Higher risk):

• Annual turnover 25-50%
• Frequent terminations
• Potential for inconsistent practices
• Higher probability of disputes
• Premium Impact: May incur 10-20% surcharge

Very High Turnover (Highest risk):

• Annual turnover 50%+
• Constant hiring and firing
• Substantial employee dissatisfaction
• High likelihood of disputes
• Premium Impact: May incur 25-50% surcharge

Why Turnover Affects EPLI Risk

• Frequency of terminations: More terminations = more wrongful termination claims
• Employee dissatisfaction: High turnover suggests workforce problems
• Inconsistent practices: High turnover makes consistency difficult
• Legal violations: More terminations increase probability of violations
• Institutional knowledge loss: Rapid turnover makes compliance harder

Example: Company A with 10% turnover vs. Company B with 50% turnover, both 50 employees: Company A has ~5 terminations/year; Company B has ~25 terminations/year—5x more exposure to termination-related claims.

Retention and Engagement Metrics

Underwriters may consider:

• Employees remaining 3+ years (loyalty indicator)
• Internal promotion rates (career path and satisfaction)
• Employee satisfaction/engagement scores
• Exit interview data (why employees leave)

What You Can Control:

• Implement retention initiatives to reduce turnover
• Improve management and supervision quality
• Create career development opportunities
• Ensure competitive compensation and benefits
• Build positive workplace culture
• Address working conditions and challenges
• Conduct exit interviews to understand departures

Rating Factor 6: Geographic Location and Jurisdictional Risk

The location(s) where you operate affect EPLI premiums because employment laws and litigation patterns vary by jurisdiction.

State-Specific Risk Factors

Lower-Risk Jurisdictions:

• States with business-friendly employment law
• At-will employment strongly protected
• Lower litigation frequency
• Lower average settlement amounts
• Examples: Texas, Utah, South Carolina, other Southern states

Moderate-Risk Jurisdictions:

• States with balanced employment law
• Standard at-will protections with reasonable exceptions
• Moderate litigation frequency
• Moderate settlement amounts
• Examples: Most Midwestern and Mountain states

Higher-Risk Jurisdictions:

• States with employee-friendly employment law
• Weakened at-will employment protections
• High litigation frequency
• Significant settlement amounts
• Examples: California, New York, Illinois, Massachusetts

Additional Considerations:

• California: Strictest employment laws; highest litigation and settlements
• New York: High employment litigation and damages
• Illinois: Wage and hour litigation is extremely active
• Massachusetts: Strong employee protections

Multi-State Operations

If you operate in multiple states:

• Premiums increase with geographic diversity
• Must comply with all applicable state laws
• Managers must understand jurisdiction-specific rules
• Premium Impact: Multi-state companies may pay 15-30% more

Local Jurisdiction Impact

Within states:

• Urban areas may have more litigation
• Different local ordinances (San Francisco, NYC, etc.)
• Local agency enforcement patterns
• Premium Impact: Urban areas may have slightly higher premiums

What You Can Control:

• Ensure compliance with all applicable state employment laws
• Implement jurisdiction-specific training for each location
• Use employment law counsel in higher-risk states
• Document decisions carefully in all jurisdictions
• Stay updated on employment law changes
• Consider relocation impact on employment law compliance

Rating Factor 7: Claims History and Litigation Exposure

Your company's prior employment-related claims directly impact EPLI premiums.

Prior Claims Impact

No Prior Claims:

• Standard premium rates
• Full coverage options available
• Favorable underwriting

Prior Claim (5+ years ago):

• Modest surcharge (10-20%) that gradually diminishes
• Questions about management response
• Impact ages off as time passes

Prior Claim (2-5 years ago):

• Moderate surcharge (20-40%)
• Underwriter review of circumstances and resolution
• Potential coverage restrictions for similar issues
• Premium decreases as time passes

Prior Claim (Less than 2 years ago):

• Significant surcharge (40-75%)
• Detailed underwriting and approval required
• Possible coverage exclusions for similar claims
• May require management improvements
• Potential non-renewal at next opportunity

Multiple Claims:

• Major surcharge (75-150%+)
• Potential non-renewal
• Possible requirement for HR improvements
• Potential exclusions for all employment-related claims

Pending Litigation Impact

Even without prior insured claims:

• Pending discrimination or harassment lawsuits
• EEOC investigations
• State labor board investigations
• Premium Impact: Pending litigation may incur 30-75% surcharge pending resolution

Indicator Claims (Warning Signs)

Even informal complaints may affect underwriting:

• High number of complaints to HR (suggests culture issues)
• Regulatory complaints or investigations
• High grievance rates
• Employee relations issues
• Exit interview patterns showing discrimination concerns

What You Can Control:

• Avoid claims through strong HR practices
• Respond to complaints promptly and thoroughly
• Investigate allegations fairly and impartially
• Document investigation and findings carefully
• Implement corrective action
• Track and address complaint patterns
• Build positive workplace culture to reduce claims

Rating Factor 8: Company Revenue and Organizational Structure

While employee count is primary, company revenue provides additional context for EPLI underwriting.

Revenue as Secondary Metric

Revenue-based considerations:

• Revenue per employee (efficiency metric)
• Ability to pay claims or settlements
• Company financial stability
• Industry profitability norms

Higher Revenue (Generally lower risk):

• Likely more sophisticated HR function
• Better ability to pay for HR systems and training
• More resources for compliance
• Premium Impact: May support lower premium

Lower Revenue (Generally higher risk):

• May have limited HR resources
• Potentially less sophisticated HR practices
• Tighter margins for claims impact
• Premium Impact: May incur surcharge

Organizational Structure

Underwriters evaluate:

• Dedicated HR function vs. ad-hoc HR management
• HR director or manager position
• HR systems and tools in place
• Outsourced HR services (PEO, ASO)
• Manager training and accountability

Dedicated HR Function: Supports lower premiums No HR Function: May incur surcharge

What You Can Control:

• Hire dedicated HR staff as company grows
• Invest in HR systems and tools
• Implement professional HR practices
• Consider professional employer organization (PEO) for small companies
• Ensure financial stability of company

Putting It All Together: EPLI Premium Calculation

Your EPLI premium combines employee count, industry risk, HR policies, training, turnover, and claims history:

Premium = (Per-Employee Rate × Employee Count) + Base Premium × Policy Adjustment Factors

Policy Adjustment Factors:

• HR policies completeness (0.85-1.15)
• Training comprehensiveness (0.90-1.10)
• Turnover rate (0.95-1.20)
• Claims history (0.90-2.0+)
• Jurisdictional risk (0.95-1.30)

Example: Mid-Size Professional Services Firm

Company Profile:

• Accounting and consulting firm
• 35 employees (30 full-time, 5 part-time)
• $3.5M annual revenue
• Located in Texas (lower-risk jurisdiction)
• 8% annual turnover
• Comprehensive HR handbook
• Annual training for all managers
• No prior EPLI claims
• Seeking $1M per-claim coverage

Rating Factors:

1. Base rate: Professional services = $1.50 per employee annually
2. Employee count: 35 full-time equivalent = $52.50 base
3. Base premium: $2,000 (typical base for this size/industry)
4. Combined base: ~$2,053 before modifiers
5. HR policies: Comprehensive handbook = 0.90 modifier
6. Training: Annual mandatory training = 0.92 modifier
7. Turnover: 8% (low) = 0.95 modifier
8. Claims history: No prior claims = 1.0 modifier
9. Jurisdiction: Texas (favorable) = 0.98 modifier
10. Final premium: $2,053 × 0.90 × 0.92 × 0.95 × 1.0 × 0.98 = $1,628 annually

Comparison—Similar firm with weak HR practices and high turnover:

• No formal handbook: 1.15 modifier
• No training: 1.10 modifier
• 35% turnover: 1.25 modifier
• $2,053 × 1.15 × 1.10 × 1.25 × 1.0 × 0.98 = $3,238 annually (nearly 2x higher)

Actionable Strategies to Optimize EPLI Insurance Costs

Immediate (0-3 months)

1. Assess HR policies - Review existing handbook for gaps and outdated language
2. Document current practices - How do you actually handle hiring, discipline, terminations?
3. Identify policy gaps - What key policies are missing?
4. Employee count verification - Confirm accurate headcount for underwriter
5. Claims history review - Document any prior claims or complaints

Short-Term (3-6 months)

1. Develop HR handbook - If not complete, create comprehensive handbook
2. Anti-harassment training - Implement annual training for all managers
3. Harassment/discrimination policy - Clear written policy if lacking
4. Complaint procedures - Formalize complaint and investigation procedures
5. At-will statements - Ensure proper at-will employment language

Medium-Term (6-12 months)

1. Expand training - Add wage-hour, ADA, and retaliation training
2. Progressive discipline policy - Formalize discipline procedures
3. Documentation standards - Train managers on documenting HR decisions
4. Turnover analysis - Understand why employees leave
5. Retention initiatives - Implement improvements to reduce turnover

Long-Term (12+ months strategic)

1. HR leadership - Hire dedicated HR manager if not present
2. HR systems - Implement HRIS or HR management software
3. Culture improvement - Build positive workplace culture
4. Engagement surveys - Measure and improve employee satisfaction
5. Industry leadership - Position as employer of choice in industry

Key Takeaway

Employment Practices Liability insurance rates reflect the likelihood and potential severity of employment-related claims. While some factors (industry, location) are largely fixed, many others—particularly HR policies, training, turnover reduction, and complaint handling—are significantly within your control.

By implementing comprehensive HR policies, providing regular training, reducing employee turnover, and creating a positive workplace culture, you can manage EPLI costs while simultaneously reducing your actual exposure to employment litigation and protecting your company and its leadership.

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Congratulations! Series Complete

You have now read all nine articles in the "Understanding Insurance Rating Factors" series:

1. Introduction: What Determines Your Insurance Costs?
2. General Liability Insurance Rating Factors
3. Commercial Property Insurance (COPE Framework)
4. Workers Compensation Rating Factors
5. Professional Liability Insurance Rating Factors
6. Cyber Insurance Rating Factors
7. Technology Errors & Omissions Rating Factors
8. Directors and Officers Insurance Rating Factors
9. Employment Practices Liability Rating Factors

Next Steps:

• Share this series with your leadership team
• Use these insights to evaluate your current insurance programs
• Contact a risk management professional to assess your specific rating factors
• Implement improvements to reduce insurance costs and actual business risk

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Ready to optimize your complete insurance program? The Volare Risk Management team can provide a comprehensive review of all your insurance policies, identify rating factors affecting each, and recommend a coordinated strategy for coverage optimization and cost reduction.