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Workers Compensation For The New Employer - Part 1

An Article About Workers Compensation Insurance By Randy Sieberg, CIC, ARM, CRM

Purchasing workers compensation insurance for the first time can be a sobering experience. For many new employers the cost of workers compensation insurance can be excessive and may impose a significant unplanned increase to their cost of doing business. Here are five tips that may help the new, or even seasoned employer keep workers compensation cost in check.

  • The Basics - What you need to know to get a workers compensation policy started for your business.

    • Workers compensation coverage is mandated and controlled by the state in which you conduct business operations. Workers comp insurance is a state specific regulated insurance coverage. The rules and regulations as to how workers compensation coverage will apply to your business are controlled by a regulatory authority in your specific state. Please check this resource page on our website to identify the regulatory authority in your state.

    • Determine if you are required by your regulatory authority to provide workers compensation coverage. You'll find that each regulatory authority has established different rules regarding the requirement to provide workers comp insurance. As an example, Missouri requires an employer to provide workers compensation coverage they have 5 employees. However if the employer is in the contracting business and has 1 employee, they must provide coverage. So be sure to know if you are required to provide coverage.

    • Know how your workers compensation premium will be calculated. Simply put, your premium is calculated as a rate per 100 of remuneration (payroll) times any discounts or schedule credits that may be applied. A workers comp policy is a 12 month policy. It will run 12 months from the inception date of the policy. These four items usually drive premium generation for an employer;
      • Remuneration. For purposes in this discussion, your payroll;
      • Job classification. A classification of the work performed by your business;
      • Rate per 100. The rate per 100 of payroll for the job class assigned to your business;
      • Audit. Your workers compensation policy is an auditable policy. Any premium you pay at the beginning is only a deposit premium. After the end of your policy period the insurance company will audit your books and compare your actual exposure base (payroll) with that which the deposit premium was based on. If your actual exposure was higher they will send you a bill for the difference. If your actual exposure was lower they will return premium to you.

    • Find an Agent. Take a little time to find an agent that is experienced with placing workers compensation insurance coverage. Ideally you want an agent who works primarily in the commercial insurance arena, who has the experience in dealing with workers compensation and who has access to more than one insurance company. Get a referral form someone you know that runs a business. Once you choose your agent, the agent should place your workers comp coverage with a reputable insurance company and help you work out any payment plan that you may need in order to budget your monthly expenses.


  • Develop Clear Job Descriptions -

    • Your business will be classified into the descriptions that best match the type of work being performed by your employees. In some cases, as with the contracting industry, a business may have multiple job classifications. Of the 700 or so workers compensation classifications available for use, the governing classification of a business is the single workers compensation class that applies to the majority of payroll and which may best represent an employer's business. You'll depend a great deal on your agent to properly class you business operations. Be sure you ask to see the job class descriptions as generated from your regulatory authority and compare those to the job descriptions you have developed. If you are not comfortable with how your agent has classified your business, ask for justification and be sure to get it in writing.

      So make sure you get the job classifications right. Your premium will depend on the accuracy of these descriptions and the proper classification of your employees into those descriptions.


Continue to Part 2 of this article >>>>>>


Publication Date: 05-18-08
Copyright © 2008 All rights reserved

Randy Sieberg, CIC, ARM, CRM, has over 27 years experience in risk management and property and casualty insurance, is with Workers Compensation Consultants, an independent workers compensation consulting firm and works with business oweners to discover and return workers compensation premium overcharges by reviewing insurance audits, job classifications, payroll class assignments, experience modification factors and credit applications. Please contact Randy at rks@workcompconsultant.com

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