If you haven’t bought employees’ compensation insurance, tread lightly—the Commissioner for Labor and his authorized officers are empowered to enter and inspect premises to take copies of records and to require information to be given to ensure that an employer has taken out an insurance policy for an amount specified under the Employees’ Compensation Ordinance (Cap. 282) (the “Ordinance”), and could visit your premises at any time to conduct a surprise inspection. Employees’ compensation insurance might just sound similar to medical insurance for employees so that you can choose whether or not you want to buy it. However, this is not the case. It is against the law to not buy employees’ compensation insurance and you may be prosecuted at any time if you don’t. So, what exactly is employees’ compensation insurance? Why do you have to buy it? Does a startup also need insurance? Read below now to learn more.
What is employees’ compensation insurance?
The purpose of employees’ compensation insurance is to protect employees from large medical expenses due to work-related injury, permanent disability or even death. In fact, it does not matter what category your employees fall under—part-time, full-time, contract or temporary—as all employers are required to purchase insurance for their employees under s.40 of the Ordinance. You might ask whether or not you could discreetly avoid buying employees’ compensation insurance or purchase it for only a few of your employees. The answer is, of course, No. Employees are not allowed to go to work before the insurance is covered. As mentioned above, the Labor Department will regularly send staff to check and calculate the salaries and insured amounts of employees to ensure that all employees are protected. If an employer, who is found to be in contravention of the Ordinance, still refuses to take out insurance, he will be liable to a maximum fine of HK$100,000 and imprisonment for two years upon conviction. This is certainly not worth the loss of a relatively small sum.
Pay attention to employees’ compensation insurance
Buying employees’ compensation insurance is not as simple as buying other kinds of insurance. Firstly, the number of employees employed at your company will affect the legal amount of insurance required. If the number of employees at your company does not exceed 200, the insured amount per accident must not be less than HK$100,000,000. For companies with more than 200 employees, this must not be less than HK$200,000,000. Moreover, regardless of the employment mode, position, working time and location, the employer must truthfully report the information of all employees. If not, the insurance policy contract may be invalidated. Therefore, an employer must check the information constantly to ensure that this information is correct and take the initiative to update employee information so as to help the insurance company assess the risk and provide the appropriate insurance amount. If you make a mistake in your declaration, the insurance company may reduce the amount of compensation or refuse to settle the claim. In such a case, the employer will have to pay the employee compensation. Moreover, an employer should prepare all renewal information before an employee goes to work and before the policy expires. Employees’ compensation insurance does not work in the same way as the Monetary Provident Fund (MPF). An insurance company can only reply to a quotation upon receiving all relevant information, and an insurance policy cannot take effect in advance. Thus, it is a good idea to prepare ahead of an inspection by the Labor Department to avoid cramming in the case of an emergency. The information required for insurance or renewal includes:
- Company information (such as the nature of business, business registration certificate, etc.)
- Employee information (e.g. type of work, number of employees, actual income and whether business travel is required, etc.)
- Past claims
- Recent MPF records
- Relevant tax returns or accounting records
The secret to reduction of employees’ compensation insurance premium
Some employers are disappointed after hearing that employees’ compensation insurance is mandatory. Is it possible to get a lower offer? To answer this, we need to know what factors affect the calculation of the employees’ compensation insurance premium:
- Past claims by employers
- Occupational safety and health and risk management measures taken by employers
- Accident rate and risk of industry/type of work
- Market conditions
- Insurance company’s underwriting policy, operating costs, risk management status, etc.
- Note that the age of employees is not one of the main factors affecting the premium
To put it simply, what employers can do is provide employees with a safe working environment, such as providing occupational safety and health training to enhance employees’ first aid knowledge, or purchasing devices that meet safety standards, so as to reduce the risks at work. Then, insurance companies may consider offering premium concessions. In addition to providing employees with a safer working environment, entrepreneurs can also consider paying premiums by credit card through Reap. Since the premium is not a small amount, using credit card payment will essentially turn the premium into a small loan. With Reap, you can enjoy a repayment period of up to 58 days, which will give your company enhanced flexibility and help you better manage your cash flow!