Workers’ compensation is a legal requirement that can quickly add up. If you have more workers’ comp claims, you can end up spending more on workers’ comp than other workplaces in your industry. Fortunately, there are a few important steps you can take to reduce your compliance costs and limit the number of claims your workplace has.
What Are Workers’ Compensation Premiums Based on?
Workers’ compensation premiums are calculated based on your company’s risk level and the size of your payroll. First, the workers’ comp insurer will give each employee a classification code that represents the risk associated with their job title. For example, an office worker will have a different risk level than a construction worker.
Then, they’ll figure out the amount of payroll that is devoted to each worker classification. The insurer will also look at the state you’re in, the classification of your overall industry, and premium adjustments for your existing safety programs.
Finally, the insurer will adjust the final figure with an experience modification rating. This is based on your history of insurance claims. If you’ve had many expensive claims in the past, the rating modifier will increase your premium.
During a Mission to Grow interview on “Controlling Workers’ Comp Costs: The Three Key Drivers to Reduce Workers’ Comp Expenses”, Rob Campbell, vice president of partner strategy at E-COMP, discussed how experience modification ratings work. “The workers’ comp experience modification is a reward or a punishment based upon how your business in your workers’ comp class code performs relative to all of the other businesses that are in the same class code as you,” Campbell says. “It’s not magic. It’s math. It’s not negotiable. There’s a formula that each state’s department of insurance uses to determine the experience modification. And it’s a reward or punishment.”
Types of Workers’ Comp Plans
When you pay for a workers’ comp plan, there are a few benefits it must cover by law.
- Wage Replacement Benefits: These benefits are designed to replace the workers’ lost wages.
- Medical Benefits: Medical benefits cover the cost of the employee’s care after an injury.
- Vocational Rehabilitation: If the worker needs to be retrained to return to work, they will need additional funds for vocational rehabilitation.
- Other Benefits: Depending on your state, your insurance plan may be required to cover other costs as well. For example, you may also have to cover burial or death benefits.
Traditional Workers’ Compensation Insurance Plans
Other than looking at the benefits covered, you may also want to consider the type of insurance plan. With a traditional workers’ compensation plan, you pay a premium before the work year starts. At the end of the year, the insurer will audit your company and adjust the total premium based on your insurance usage.
Pay-As-You-Go Workers’ Compensation Plans
Alternatively, you could get a pay-as-you-go workers’ compensation plan. Instead of having to pay a large upfront premium for the upcoming year, you could simply pay each month based on your actual payroll usage. These plans are integrated into payroll systems, so the insurer can get an extremely accurate estimate of your monthly payroll costs.
With pay-as-you-go workers’ comp, you can enjoy a number of important benefits.
- No down payments
- Easier audits
- Improved cash flow
- Easier compliance
- Accurate premiums
- Better flexibility
Easy Ways To Reduce Workers’ Comp Costs and Claims
When it comes to workers’ comp, the most important thing you can do to reduce your costs is lower your experience modification rating. This can be done by having fewer, less expensive claims. The following strategies are the major ways you can reduce your workers’ comp costs.
- Risk Management: Risk management involves lowering the chances of having an injury in your workplace. This may involve better HR infrastructure, hazard identification, or employee training.
- Claims Management: Nurse triage and similar techniques can help you manage existing claims so that they cost less. By making the claim less expensive, you reduce the impact it will have on your experience modification rating.
- Insurance Policy Management: Finally, remember to shop around and negotiate for better deals. Agents are paid on commission, so they don’t have an incentive to lower your premium price unless you ask them about it.
To start lowering your workers’ comp expenses, use the following tips.
1. Update Your Employee Handbook
One of the first things you should do is update your handbook with policies about on-the-job injuries. For example, you may want to include a policy section that requires workers to report injuries right away. Additionally, the same section may include phone numbers for reporting to superiors, procedures involved in managing the claim, or specific medical providers to call if an injury happens.
2. Use Nurse Triage
Top insurers offer nurse triage to help lower the cost of insurance claims. Basically, the employee calls the triage line to get medical advice and care. Then, the nurse can tell the employee if their injury warrants in-person medical attention or how to treat it at home. They will also call to follow up with the employee about ongoing symptoms.
You don’t have to worry about the quality of your workers’ care. According to Campbell, “That nurse is going to err on the side of caution without a doubt. Their goal is to meet the injured worker’s needs and direct care in the most cost-efficient way.” The biggest difference is that the worker is receiving the same quality of care at a much lower price. Often, nurse triage calls don’t even count as a claim, so they don’t go against your experience modification rating.
3. Train Workers on Your Policies
Your policies are only useful if your workers are aware of them. During onboarding, you should train your workers on the handbook. Additionally, you should consider doing annual policy updates so that workers are aware of the latest changes.
Once you train workers on the handbook, the next step is getting them to sign a document stating that they completed training and agree to report all injuries. While this will hopefully never happen at your workplace, there are times when employees get injured over the weekend at home and claim it happened at work.
You can’t simply tell your insurer the claim is invalid and shouldn’t be paid. There needs to be documentation and proof that the claim is invalid. Signed documentation from training shows the employee knew that they were required to report work-related injuries, and they can help your insurer argue against invalid claims.
4. Create Investigation Policies
As a part of your incident response, you should plan how you respond to incidents and investigate them. This should include procedures for documenting the incident and talking to witnesses. If there are mitigating factors, like an inebriated worker or the injury occurred outside of work, your investigation should uncover these issues.
5. Develop Policies and Procedures Before a Problem Occurs
It’s important to develop policies and procedures before a problem occurs. These include policies about reporting incidents, calling nurse triage, and investigating claims. You never want to seem like you’re creating your policies on the spot for a specific employee or incident.
6. Follow Procedures Consistently
As a corollary to the last step, it’s essential to follow all of your procedures consistently. When it comes to HR, consistent procedures help to avoid even the perception of being unfair. They can also protect your organization from discrimination and harassment claims.
7. Be Careful With 1099 Contractors
HR professionals always say that everyone is happy being a 1099 worker until they aren’t. While a 1099 contractor may initially love working as a 1099 contractor, this can change if they become injured.
After an injury, the 1099 worker isn’t able to earn any money. No matter how loyal they are to your business, they’re still surrounded by spouses and relatives who are likely pushing them to apply for workers’ compensation. Bills are stacking up, and they need to find some way to stay financially afloat until they start working again.
To protect your business, it’s important to document all of your 1099s. Get them to sign a 1099 contract, and verify that they have their own workers’ compensation coverage before you hire them. If they have their own coverage, they won’t feel forced to go after your company for workers’ compensation if they become injured.
8. Hazard Identification and Safety Management
You can also avoid costly workers’ compensation claims by identifying hazards in your workplace. Then, find ways to mitigate these hazards. This may be through employee training programs or redesigning the workplace. For instance, you may require employees to wear yellow safety vests if they’re in a loading zone.
9. Build the Right Company Culture
Your company’s culture plays a role in whether workers follow safety rules and report injuries. It also impacts whether workers are excited to stay home with an injury or anxious to get back to work. When you have a good company culture, people are less likely to stay home unless they absolutely have to.
10. Adopt a Wellness Plan
Unhealthy workers are significantly more likely to become injured. By creating a wellness plan at your organization, you can encourage healthier employees and avoid workers’ comp claims. Additionally, a wellness-focused culture can help attract top applicants.
11. Document Everything
Sometimes, employers get upset with insurers when a fraudulent claim is paid out. However, the insurer doesn’t always have an option. Unless you carefully document the injury, your investigation, and your HR policies, the insurer doesn’t have a way to push back against the claim. By documenting everything, you can protect your company and ensure your company is in compliance.
Lower Your Workers’ Comp Premiums With Pay-As-You-Go Plans
Every couple of years, you should spend some time shopping around for new insurance plans. Even if you don’t want to change insurers, shopping around allows you to renegotiate the current amount you pay. You can also save money and reduce your upfront costs by opting for a pay-as-you-go plan.
If you’re interested in learning more about workers’ comp compliance and controlling your company’s costs, reach out to our small business HR and payroll experts today.