List my father as an "Employee" or "Additional Insured"?

Question

I own/operate a small retail business, structured as an LLC. I am now purchasing Property and Liability insurance. I run this business myself and am the only person listed under the LLC, so I know that I will be covered under the policy. I have no employees.

My father is retired and spends his days helping me in the shop. He works with customers, makes sales, cleans, etc. He is NOT on my payroll.

Question #1: I want him named in the policy as being covered but do not know whether to list him as an "Employee" or as an "Additional Insured" on the application. What is the difference and which would provide the most protection in this situation?

Question #2: In speaking with the insurance salesman, he said I should list him as an Employee. To me however, this would be questionable in litigation should the LLC be sued because I have reported to the IRS that I have no employees for tax purposes and he is not on my payroll. Does this matter, or I have to put him on payroll and pay him $20 a month or something to be legal?

Anonymous · Accepted Answer

1.  There's a HUGE difference, but the standard general liability policy already includes coverage for your employees, AND volunteer workers,  with a few exceptions.  Additional insureds, also, have some coverage limitations.  

2.  I agree with you, not your salesman.  If you're not paying him, he's NOT an employee.  He's still a volunteer.  It opens your LLC up to a whole bunch of different issues, including workers compensation lawsuits.  You can't put him on payroll and pay him $20 a month, you'd be in major trouble with the state labor department regarding how much you're paying him, and would be on the hook for workers comp.  

Go to your agent, and ask him to read the coverage form.  The standard GL coverage from CG 00 01 12 04  DOES include coverage, ALREADY, for volunteer workers (section 2, "who is insured", paragraph a).   If your policy form does NOT already have this wording built into it, you need to see if the agent can get the insurance company to manuscript that type of wording onto your policy.  

You want "volunteer workers as insureds" under the GL policy.

StephenWeinstein · Answer

If the business does not have health insurance:

Put him on payroll.  Pay him a small enough amount so that he does not have to pay any income tax, but a large enough amount so that he gets the earned income credit.  You can deduct his salary or wage as an expense on your income taxes.  Everyone wins, except the IRS.  The IRS loses.  You and your father win.

If the business has health insurance:

Do not put him on payroll until you are sure either (a) that putting him on payroll will not force you to put him on the company health insurance, or (b) that putting him on the company health insurance will not cost more than you can afford.

tro · Answer

don't know what the additional insured would be, your agent can enlighten you but he has already told you to list him as an employee and you will have to pay him as such as well

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List my father as an "Employee" or "Additional Insured"?

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