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 insurance 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.
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.
Just like any insurance, the more claims you have, the higher your premiums. In workers' comp terms, your company's "loss history" over previous years determines the rate you pay. The more claims that are placed, the higher your premium becomes.
The experience modifier, or e-mod, rate is determined by the number of 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' comp, 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.
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.
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.
When employees suffer injuries on the job, they may be entitled to workers' comp 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' comp coverage can give your budget more breathing room. Your PEO can provide you the guidance to create and implement a proper return to work 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 program. 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.
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.
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. Your PEO will investigate every workers' comp claim to ensure there is no fraud taking place.
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 join 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.
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 a clear way to reduce workers' compensation premiums, reducing your workers' comp costs.
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.