I have an employee who has been with my company a long time. She is one of the most important assets I have. If something happened to her, the business would be in big trouble — perhaps, even, big enough trouble to close down. Is there a way to protect the business if this key person passes away?
All owners should make plans to protect their business. Companies generally have some sort of insurance that covers the hard assets of the company but rarely have one covering the key players of the business. The key player in a business might be the owner or a person with special skills, or anyone else who is highly instrumental in your success.
Key person insurance, often referred to as “key man insurance,” is a life insurance policy on a key employee. It is meant to protect a company from collapsing when something horrific happens, like a death. Here’s how it works:
The company purchases a life insurance policy on the key employee and pays all the premiums. The company is the beneficiary.
If the employee dies, the cash benefit will help cover the expense of hiring a replacement and cover any other expenses needed to keep the business running smoothly.
In the worst case scenario — when the business must close — the cash makes it possible to pay debt, severance to employees, and possibly cash to shareholders.
Key person insurance is especially a good idea when the success of the business is dependent on one or two employees. It gives your creditors and shareholders peace of mind knowing that the business will be able to continue operating if the key person is not there. Knowledgeable customers may also feel assured that you’re in business for the long haul. The insurance payout is generally free of federal income tax, so you know ahead of time exactly what you’ll have to work with if something happens. Last but not least, if the key person does not pass away but decides to retire, the company may opt to give her or him the cash surrender value of the policy. Now that’s a perk they wouldn’t expect!
My company is doing some hiring, and I’ve had a few people call to schedule interviews. I asked one if he could come in Wednesday. He said he would check with his friend about getting a ride and call back. I asked if he was going to be able to get to work every day if he did not have reliable transportation, and he said, “I’ll get there one way or another.” It keeps running through my mind that I would be setting this guy up to fail if I hire him when I know he has spotty or unreliable transportation. His shift is a night shift, so no public transportation will be available. Is it legal for me to deny someone employment based on them not having reliable transportation?
States have different laws, but, from my understanding, in most states you cannot discriminate against someone based on how they will be getting to work. Do you know how everyone else in your company gets to work? I don’t. What is legal, however, is to have requirements that employees report to work on time, regardless of the location or the shift they work.
This person may not be someone I would be thrilled to interview or hire based on his response of having to check with someone on getting to a meeting. When job hunting, people should know when they are available, when transportation is available, and when they can start a new job. It would have been fine for this person to say: “I am not available Wednesday, but I could come in on Thursday or Friday. Does that work for you?” He would then have time to make arrangements, and you wouldn’t know he didn’t have transportation.
A step you might consider in the future is to write your job application question with some explanation. In your case, you might say: “This job requires employees to work from midnight to 7:30 a.m. in a location not served by public transportation (six miles outside of city limits). Lack of attendance and tardiness are grounds for termination. Do you have reliable transportation?” Use a yes or no check box and you’ll have that answer on record.
Anne Williams is the president of JobFinders Employment Services. She is not an attorney. All content in this column is not guaranteed for accuracy and legality and is not to be construed as legal advice.