Domestic workers account for a large percentage of the global workforce, and the U.S. is no exception.
According to the National Domestic Workers Alliance, there are over 2.5 million domestic workers in the United States. They do everything from caring for children, elderly or sick family members, household chores, cooking, cleaning and gardening.
Such a large number of domestic workers in this country presents an important insurance question. If you employ people who work in your home, like a nanny or housekeeper, do you have a legal obligation to insure your home as if it were a business?
In this post, we’ll take a look at the legal requirements as well as some of the benefits of insuring domestic workers that your customers may not realize. We’ll also offer advice on how independent agents can open those conversations.
How do you Define a Domestic Worker?
A domestic worker is classified as someone who works in a household of another person called an employer. The key word here is “employer” because domestic workers are considered employees in this type of working arrangement.
The legal definition of an employee varies depending on the state. However, a domestic worker would usually be considered an employee if you tell them how, when and where to work, have a contract with them or if they continually work for you rather than just on a one time basis.
What’s an Employer’s Liability?
If a domestic worker is an employee and not an independent contractor is hurt on the job, their employer is usually held responsible for any injuries they sustain. This means the employer has a legal obligation to insure their home as if it were a business.
This is something people need to be aware of when hiring a domestic worker who’s legally classified as an employee. It’s not necessarily something that’s on everyone’s radar because they may not think of a domestic worker as an employee in the conventional sense.
But in this situation, the employer is often required to have fairly robust insurance coverage in case they’re ever held personally liable for an injury sustained by a domestic worker in their home or on their property.
Does Homeowners Insurance Cover Domestic Workers?
This is one of the most commonly asked questions by people who hire domestic workers. Does an employer’s existing homeowners insurance cover these individuals? The short answer is yes, according to insurance broker owner Jeff Ryan. However, the coverage is extremely limited, potentially putting individuals who employ domestic workers in financial jeopardy.
“Homeowners coverage may respond for an injured domestic worker IF the worker is NOT required to be covered under your State’s Workers Compensation regulations,” Ryan adds. “Homeowners policies EXCLUDE coverage for ‘residence employees’ (say domestic worker) IF they are required to be covered under Workers Compensation.”
The team at Coastal Insurance Solutions points out that in New York State (like many others), homeowners insurance provides personal liability coverage. However, that coverage is limited to family members within the household. While someone may consider their au pair to be part of the family, insurers do not. This means homeowners coverage isn’t extended to them.
They also mention that some homeowners policies offer a Workers’ Compensation endorsement, but it only covers domestic workers who work less than 40 hours per week.
The bottom line is that homeowners insurance may offer some level of protection, but it’s not really something you can hang your hat on. As a result, many homeowners who employ domestic workers have large gaps in coverage, and they don’t even know it. In a worst-case scenario, they could be sued for millions of dollars if an employee is seriously injured.
Most States Require Workers’ Compensation
Most states require employers to have workers’ compensation insurance to cover domestic workers.
“This insurance will reimburse an employee who was injured on the job for qualifying medical expenses and lost wages,” according to household payroll provider HomeWord Solutions. “If you don’t have a workers’ compensation insurance policy, you may be personally liable for your injured employee’s expenses.”
But before checking whether or not your state requires workers compensation, the homeowner needs to determine who the employer is. If the help is hired through an agency, for example, that agency’s insurance may cover the worker including workers compensation. However, if the homeowner determines they are the employer, we come to our next point regarding workers comp.
Workers’ Compensation Laws Vary State to State
There are some significant differences regarding how each state approaches workers compensation.
“Some states have a dollar threshold as to when a domestic employee must be protected by workers’ compensation,” explains Bob Rusbuldt, CEO of the Independent Insurance Agents and Brokers of America. “Some have a number threshold — for example, workers’ compensation is not required until there are 10 domestic employees.”
Therefore, it’s crucial that you check your state’s workers’ compensation laws to walk through the details and exceptions, as well as options employers have for purchasing coverage.
Throw in State Unemployment Insurance as Well
In addition to workers comp, employers often need to pay for state unemployment insurance (SUI) for domestic workers.
SUI provides stipends to workers if an employer ends the employment relationship due to no fault of their own, explains Krystal Barghelame at online payroll and HR services provider Gusto. Under this arrangement, a domestic worker receives paychecks from the state’s unemployment agency either until they’ve found new employment or reach the end of the allowed time period.
The Benefits of Insuring Domestic Workers
At this point, we’ve established that individuals who hire long-term domestic workers are generally considered employers, and the workers themselves are considered employees. Employers are liable for injuries suffered by employees and need coverage such as homeowners insurance, workers’ comp and state unemployment insurance to protect themselves.
Being properly covered offers two main benefits peace of mind and financial protection.
Home injuries are more common than you may think. There are more than 21 million medical visits due to people being injured in their homes each year, writes Kimberly Alt at security solutions provider ASecureLife. And unfortunately, many of these accidents are fatal, with over 18,000 Americans dying each year from home-based injuries.
Insuring domestic workers means employers don’t face a major financial backlash in the event their housekeeper or gardeners has an accident and is injured. It also ensures those employees are properly taken care of. Domestic workers, and immigrants in particular, face a host of physical hazards that increase their risk of occupational injury and fatality, writes Sally C. Moyce, Ph.D., R.N. and Dr. Marc Shenker.
Comprehensive coverage ensures they’re adequately covered while on the job, can receive physical rehabilitation if they’re seriously injured and will receive income if they’re unable to work for an extended period of time. In a worst-case scenario, coverage will provide death benefits as well, where a payout is given to the domestic workers’ beneficiary.
How Agents Can Open These Conversations
Now for the big question. How should you initiate a conversation about insuring domestic workers?
First of all, you need to target existing customers and prospects who are most likely to need these services. Two of the largest demographics are heads of the household with large families — think parents with full-time jobs and multiple children — and elderly individuals 65 years or older, says workforce analyst, Lynn Wallis.
These are the types of people who often need help around the house and are more apt to hire domestic workers.
From there, it’s all about building relationships. It’s vital to stay in touch with your customers and even seemingly unimportant small talk can reveal issues they may be facing and provide clues as to how you can best serve them.
Perhaps you have a customer who’s been buying homeowners insurance from you for years. They mention that they’ve recently had a baby and hired a nanny to assist with caregiving. That would be the perfect time to ask whether they’re fully covered in the event that the nanny becomes injured on the job.
You could mention some of the options available such as workers’ compensation and state unemployment insurance to ensure they’re fully covered. And because modern insurance consumers thrive on knowledge and trust, it’s important to provide them with educational materials to help them understand.
Pointing them to a blog post about insuring domestic workers, a video about coverage options or offering a brochure featuring policy cost comparisons are just a few ideas of how you can help your customers obtain additional knowledge.
Insuring a Growing Workforce
There’s an increasing demand for domestic workers fueled by demographic, social and employment trends, according to Karin Pape, deputy director at Women in Informal Employment: Globalizing and Organizing. And like any other profession, these employees deserve proper coverage in the event of an injury or illness.
Because traditional homeowners insurance isn’t always adequate, it’s vital that employers who hire domestic workers understand that many states require them to purchase workers’ comp insurance as well as state unemployment insurance.
As an independent agent, you can help ensure they’ve got everything they need to cover their domestic workers. It’s just a matter of educating them on key matters and pointing them to the right policies.