Topic Outsourcing HR / PEO

How PEOs Control Workers' Comp Costs

How PEOs Control Workers' Comp Costs

Insurance companies often deem certain industries "high risk" and charge more for workers' compensation insurance coverage. Even companies in low-risk categories may find it challenging to get affordable workers' compensation coverage. Business owners should know how to reduce workers' compensation costs, while still focusing on core business needs.

The following provides a few ways in which you can work to lower your workers' compensation costs with a professional employer organization (PEO).

3 Ways to Reduce Workers' Comp Costs

Small and mid-sized companies often find themselves looking for ways to cut certain business costs, including workers' compensation. In certain industries, the cost to carry workers' comp insurance can be too high, and some companies risk fines and penalties for not carrying any coverage. That's not a good position to be in and by following these guidelines, you can begin to reduce your workers' comp costs.

Lower the number of claims

Just like any insurance, the more claims you have, the higher your premiums. In workers' compensation terms, your company's "loss history" over previous years determines the rate you pay. The more claims that are placed, the more a workers' comp insurance carrier will require in premiums.

Lower the amount of benefits paid out

The experience modifier, or e-mod, rate is determined by the number of workers comp claims you have and the total amount of benefits your company has paid out, among other items. Higher e-mod rates mean higher premiums.  By reducing the total dollar amount of benefits paid to employees through workers' compensation, your premiums will not rise as much as they otherwise would. Conversely, the more benefits that are used, the higher your e-mod rate becomes, increasing your premiums.

Change worker classification

The National Council on Compensation Insurance (NCCI) provides statistical data to insurance companies and states that offer workers' compensation coverage. The NCCI provides class codes, of which there are more than 800, placing employees into categories of risk. Certain class codes are higher risk than others, resulting in higher premiums. But if you can legitimately classify employees in a job with a different class code, you may see cost savings.

How PEOs Control Workers' Comp Premiums

A Professional Employer Organization (PEO) can provide additional ways to reduce workers' compensation costs, among many other cost-saving initiatives. Changing employee class codes can be a quick way to reduce costs, for example, but it can also be confusing and ripe for mistakes. If you enter an incorrect code, you risk fines and penalties. Partnering with an experienced PEO can help you develop plans and policies to reduce your workers' comp costs legitimately.

Establish Return to Work Program

When employees suffer injuries on the job, they may be entitled to workers' compensation benefits. The sooner they get back to work, the lower the amount of benefits they receive. This can mean lower premium increases. Even if your employees return to work in a reduced or altered capacity, getting them off your workers' compensation coverage can give your budget more breathing room. Your PEO can provide you with the guidance to create and implement a proper return to work program. All programs will comply with standards set by the Occupational Safety and Health Administration (OSHA) for light duty.

Develop Safety Program

Safety programs, especially in high-risk industries like construction companies, are essential. When you hire a new employee, they must go through your safety training. The same is true of employees who have been on the job for some time. 

Creating a "culture of safety" can prevent workplace injuries. When employees know what to do to stay safe, it reduces the overall number of on-the-job injuries, which means lower workers comp premiums than you otherwise would have. A trusted PEO partner can help you reach this goal by helping your business create a world-class safety program. 

Optimize Worker Classification 

The NCCI class codes can be confusing. There are numerous categories under which employees may fall. Your PEO has HR experts on staff ready to review your employees and their current class codes. These experts understand the nuances of employee duties and how to classify them under different class codes legitimately. That way, your company can see a cost savings in your workers' comp premiums

Fraud Prevention through Claims Administration

Most employees are honest and trustworthy. But some bad apples exist. While uncommon, some workers have been known to fake an injury to collect benefits and get some time off. When your PEO takes over workers compensation claims management, they will investigate every workers' comp claim to ensure there is no fraud taking place. 

Access PEOs Experience Modifier

If your business operates in a high-risk industry, your experience modifier rate may be high. This can result in high workers' compensation premiums. But when you partner with a PEO, you can join their existing workers' compensation plan, which may have a lower experience modifier rate than what you could get on your own. This serves to further reduce your workers' comp premiums.

PEO Workers' Compensation Lowers Costs

Wondering how to reduce workers' comp costs is a thought many small and mid-sized business owners and leaders have frequently. Workers' compensation insurance coverage can represent a significant portion of your operating budget. Finding ways to reduce your workers' comp premiums can provide instant relief.

There are numerous steps you can take to reduce your workers' comp burden, which can cost you several dollars per $100 of payroll per employee. But you may not have the time or resources to effectively reduce your costs. That's where you can find cost-cutting benefits by partnering with a PEO.

PEOs provide your business with a clear way to reduce workers' compensation premiums, reducing your workers' comp costs. 

The Complete Employer Health Plan Checklist

FAQ About Getting Workers' Comp Insurance
from a PEO

With few exceptions, every employer must carry workers' compensation insurance coverage. This type of no-fault insurance provides coverage for an injured employee's medical bills and missed paychecks. Many small businesses face difficulties obtaining affordable workers' compensation coverage. That's where a Professional Employer Organization (PEO) can help. 

What is a Professional Employer Organization? 

A PEO is a type of HR outsourcing company. Small businesses partner with PEOs and enter a co-employment relationship where the PEO assumes responsibility for certain employment actions. You, however, retain full and sole control over the day-to-day operations of your business, including all employment decisions. 

PEOs partner with many small businesses and offer each of them access to workers' compensation coverage at lower prices than most could get on their own. How? Through economies of scale. The best in class PEOs only use A+ rated insurance carriers, so you can rest assured that your coverage will be top notch.  

It's important to note here that a PEO is not the same thing as an employee leasing company. A PEO fills the gaps in your company's HR needs, working alongside your HR team, not replacing them.   

What Types of Workers' Comp Plans Do PEOs Offer? 

There are several different plan types available. Here's a brief discussion of the three most common, but it can vary depending on the state where your business is located and if there are voluntary and residual markets. 

Master Policy 

This is a standard workers' comp policy. It's in the name of the PEO, and because the PEO serves as the employer of record for your employees, your workers are covered under this policy. 

Multiple Coordinated Policy 

This is similar to the master policy. However, each PEO client company has its own endorsement, creating coverage for your specific employees.  

Multiple PEO Policies 

This approach requires you to get your own workers' compensation policy and name the PEO as the primary insured. 

How Does the PEO's Experience Modifier Impact Workers' Comp? 

An experience modifier is a multiplier that insurance companies use to determine a workers' compensation rate. This experience modifier is higher if you've had multiple workers' comp claims.  

This is where partnering with a PEO can be cost-effective and help to lower your workers' comp expenses. Joining a PEO master policy, you gain access to the PEO's experience modifier, which may be lower than your, resulting in lower workers' comp costs. 

What is Pay-as-You-Go Workers' Compensation? 

If you get your own workers' comp plan, you must pay upfront costs plus regular fees. This traditional approach could require up to a 100 percent deposit.  

With a PEO, however, you're joining an existing workers' compensation policy. That means the upfront fees have already been covered by the PEO, making this a more cost-effective option. 

Most PEOs also offer you pay-as-you-go plans. The PEO deducts a portion of your premium from each payroll run, helping to improve your company's cash flow by keeping more money in your company, and less flowing out to workers' comp premiums.  

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Laura Platero

Laura Platero

Laura serves as the Director of Product Strategy. She is an expert in large scale benefits account management, project management, product development, sales, customer service, and benefits consulting.