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This is a list of the most common mistakes an employer may make that ultimately costs them higher workers compensation premiums. Some of these make common sense but you'd be surprised how much cost these common sense workers compensation mistakes add to an employers bottom line. After all it is all about cost containment. While workers compensation may be a mandated insurance coverage, that doesn't mean an employer has no control over the cost.
There are two common workers compensation payroll mistakes an employer may make. Both have an associated cost that effects the employer in different ways.
The first is underestimating the projected annual payroll. As Workers compensation premium is directly related to the estimated payroll, any underestimating of payroll at the beginning of the policy period will at audit result in an additional premium due. Many times this is a large additional amount due that comes to the employer as a surprise.
What happens when an employer underestimates his payroll? Here's a couple of items to consider:
Exposes the business to a large additional premium due after audit
Inefficient use of premium funds in that a potential large audit bill will be due in full rather than making premium payments in installments over the active policy period.
The second common payroll mistake is overestimating the policy period payroll. When workers compensation payroll is overestimated;
The employer has in fact overpaid for his workers compensation insurance coverage. Even though the employer may recoup the over payment after audit.
The employer is allowing an insurance company to hold his over paid premium funds, without the benefit of any return on investment, until the audit is completed. Certainly not a very efficient use of an employers insurance funds.
Establishing the proper payroll projections from the beginning of the policy period may seem a difficult process but a process in which an employer will be rewarded for accuracy. Underestimates and overestimates both create unfavorable situations for the employer.
2. Change of Business Operations.
Business operations are classified into the descriptions that best match the type of the work being performed by the business. Of the 700 or so workers compensation classifications available for use, the governing classification of a business is the single workers compensation classification that applies to the majority of payroll and which may best represent an employers business.
Any change to an employers business operations may have an impact on the classification of their workers compensation insurance program.
As an example perhaps the owner of a residential carpentry business who previously specialized in remodels and decks decides to change, because of an opportunity in his service area, to performing roofing tear offs and re-do's. In this case the business owner would more than likely experience a significant increase in his workers compensation premium after audit due to the higher classification of roofing being applied.
Another example may be a business owner who, rather than changing his total business operation, decides to add another division to his business perhaps a metal goods manufacturer who adds a finishing operation or who adds a wood products or delivery service.
So keep in mind, if you change your business operation, you will need to modify your workers compensation policy to reflect that change.
What is a subcontractor? Generally accepted as an individual or business who performs part or all of the described work under an others contract. In other words, another business you hire to do work for you.
Here's one typical example of how a subcontractor can effect your workers compensation premium. You bring a subcontractor onto your job site to perform a specific job. He does the work and presents you with a bill for services. Your bookkeeper pays him. At the end of your workers compensation policy period the company auditor audits your books. He identifies the work performed by the subcontractor and asks to look at the certificate of insurance the sub provided you. You can't find one. Your audit comes out and guess what? Correct you get to pay for the subs work comp while on your job. Sound familiar? Happens everyday. This scenario can be headed off with a good in house subcontractor management program.
The most basic subcontractor management program is to make sure you have current certificates of insurance for each of the subcontractors that you used during the policy period. Also make sure the certificates show workers compensation coverage is being provided. You'd be surprised how many small contractors have general liability coverage but no workers compensation coverage. Certificates of insurance must cover the period when the subcontractor worked for you. Be aware, this may require certificates covering different policy terms for the subcontractor.
4. Workers Compensation Claims
If your business qualifies for experience rating, each and every claim dollar paid will ultimately effect your workers compensation insurance cost.
Some believe that a workers compensation policy is simply a finance mechanism for paying claims and that employers would be better off without the workers compensation system in place. Well, it's not that simple. The workers compensation system is comprised of much more than the simple process of paying claims. The product delivery to an injured employee is complicated and governed by statute. Not many employers have the expertise or funds to provide the quality claims management services employees may need when claims occur.
Poor claims management by an employer will ultimately result in an increased cost of workers compensation insurance. The most direct link to claims and increased cost is through a mechanism known as the experience modification factor. The experience modification factor in simple terms is a mechanism that compares your individual workers compensation experience, comprised of payroll and claim dollars, to those of similar businesses. Those with better experience have lower factors thus reducing your total work comp cost. Conversely, those with poor experience have higher factors thus increasing their total work comp cost.
So as an employer you should;
Report claims to your insurance company as soon as possible
Pay close attention to all open claims
Work towards the goal of closing claims as soon as possible
Stay in touch with your insurance company adjuster
Do all that you as an employer can to get your injured employee back to work as soon as possible
It's a fact that workers compensation claims occur. When an employee is injured they need your workers compensation program to be working at it's best. Providing the necessary medical and rehabilitation services to get them back to work. But when a workers compensation claim goes out of control you can be assured it will effect the total cost you pay for workers compensation. There are many steps an employer can take to help keep workers compensation claims under control. Possibly the single most important step is to stay involved in the claims process.
5. Using Inexperienced Agents
Would you take a vehicle to a legal professional for repairs or ask an auto mechanic to write and implement a last will and testament? Probably not. Are you really comfortable buying workers compensation coverage from an agent who advertises the "cheapest auto insurance in town?" Probably not.
As in all professions, you will find a wide variety of knowledge and expertise among insurance agents. Selecting the proper agent, one who has good knowledge, practice and understanding of the workers compensation process, is very important. An agent is the liaison between your business and the insurance company. An agent should be able to assist you in placing workers compensation coverage with a company who understands your type of business operation and who is financially stable and committed, as shown with a positive track record, to remaining in the workers compensation market place. A company who will be there to provide claims services for your business when you need them.
Keep these items in mind when selecting an insurance agent;
A direct writing agent is an employee of the insurance company, and will be limited to providing only the coverage his company offers.
An independent agent represents different insurance companies and should be able to provide you with a variety of carrier options.
An agents primary job is to sell insurance, not to spend "selling" time looking for ways to reduce or return premium to your business.
Few agents have real experience or desire to review your payroll audit worksheets or review your experience modification worksheets and make complicated corrections.
Many agents are not educated in the complicated rules and regulations as set forth by NCCI or other regulatory bodies.
As an employer you should be diligent in the selection of who represents your business to the insurance company. Workers compensation coverage is available from many sources and your selection of an insurance agent may help or hinder access to the best sources for your business.
6. Safety Plan
Many employers simply disregard the positive effect a safety plan has on their workers compensation program. They chalk it up to too much trouble to design, not enough time to implement and to costly to maintain. When in fact just the opposite is true.
A safety plan works because it can improve the bottom line costs of doing business. Effective safety plans lower injury rates and can result in a lower cost of worker’s compensation insurance due to lower experience modification factors. Preventing injuries means less time the employer must spend recruiting and training new hires. A safety plan will help keep your employee safe and on the job.
An effective safety plan may also qualify an employer for workers compensation premium credits. These credits may be in the form of formal credits as offered through your state or those specifically applied to your policy by an insurance company.
We've touched on just a few of the many ways a safety plan can be a positive impact on an employers overall work comp cost. From direct cost savings, like the application of premium credits, to those indirect savings like improved employee moral due to a safe and healthy work environment, the benefits of a safety plan are clear for the employer.
An employer has many resources at his disposal to assist in the design and implementation of a safety plan. Programs may be available directly from your state or through your insurance company.
7. Lack of Control
An employer must take responsibility and control of his workers compensation program. Lack of control will only bring on unnecessary expense.
Adapting some form of workers compensation cost control program will help provide the employer a format in which all major workers compensation cost areas can be addressed under one central guide. A proper cost control program will include premium control issues, safety planning and will establish an internal procedure for reviewing all these areas.
A cost control program can be very simple or very complex. For most small business owners a simple written program that outlines their own cost control procedures will be a good start. A few items that should be addressed in the most basic workers cost control program are:
Developing a relationship with an independent audit and premium review company;
Developing and implementing an organized Safety Plan;
Address employee training;
Address hazards in the work place;
Develop claim procedures, what to do when an employee is injured;
Conduct safety meetings;
Just a few items to get you thinking!
8. No Return to Work Program
Claims have a direct impact on the cost of workers compensation. So everything an employer can do to reduce claim costs will have a positive impact on reducing their overall workers compensation cost.
A return to work program is a program established by an employer that allows an injured employee to return to work in a light or modified work duty position. The injured employees ability to take advantage of a return to work program is guided by his medical rehab team and upon their authorization only.
Here's some benefits of a return to work program:
studies indicate injured employees heal more quickly when they return to some type or work as soon as possible;
the employee retains work skills otherwise lost while away from the work place;
an employee gains support from co workers;
the employer gains direct reduced costs;
an employer maintains productivity;
the program helps reduce the employers claim cost and is a positive effect on the employers experience modification factor.
A return to work program can be very simple. As with safety programs, an employer has many resources when it comes to help establishing a return to work program.
9. Workers Compensation as a Commodity
When securing workers compensation insurance is treated as a commodity the whole process is reduced to nothing more than picking up a gallon of milk from the local grocer. Is it in an employers best interest to buy the cheapest workers compensation coverage available? Let's hold that thought for awhile.
Workers compensation coverage is a complicated mechanism designed to transfer your risk of financial catastrophe due to the injury, subsequent medical cost and rehabilitation of an employee. While workers compensation coverage may seem to be the same regardless where or who you secure it through, let me warn you, it is not.
We see many employers purchasing workers compensation coverage just like they would buy a gallon of gasoline, from the next cheapest pump down the block. Unfortunately, sometimes they really get what they pay for! When reduced to a price only decision an employer may be exposing his business and future to unknown liabilities.
Here's some things an employer should keep in mind:
Work with reputable, financially solid workers compensation insurance companies. Insurance companies do go out of business!
Do not be fooled in a soft market, a time when insurance rates are low, that one insurance company is just the same as another. There are reasons for differences in rates.
In soft markets many other players show up on the scene and as soon as the market tightens remove themselves from a state leaving employers scrambling around to find coverage.
Complete your review of potential insurance providers with your goal set on finding a company that can;
Provide you with competitive rates;
Meet all the service requirements that your business may demand;
Has knowledge about your type of business;
Can demonstrate their longevity in the market place.
Once you've made a good business based decision, purchase your workers compensation coverage with confidence.
As a final thought let's just say cheap may not be in an employers best interest. Do the homework!
10. Verify Audits and Premium Calculations
Employers lose thousands and thousands of premium dollars each and every year due to mistakes and errors made by insurance companies. These mistakes and errors occur in many different premium producing areas of the workers compensation process.
We find them most frequently in:
Workers Compensation Audits;
Experience Modification Calculations;
Unfortunately most of these errors and mistakes remain unknown to employers. Because of this, it's important that an employer verify all audits and review all premium calculations that may be presented to them by an insurance company. It's the hidden or unknown overpayment that can hurt an employers bottom line.
Most employers are unfamiliar with the complicated calculations that make up their total workers compensation cost. Audits, experience modification calculations and premium calculations all effect the total cost. All premium producing areas of a workers compensation program should be reviewed on an annual basis. A review should include audits, job classifications, experience modification factors, premium calculation, rate verification and credit.
A mistake many employers make is turning to their insurance agent or insurance company auditor for help. Keep in mind an agents job is to sell insurance and an auditors job is to find all additional premium for the insurance company under the rules they have to work within. So it is imperative that an employer use an independent company who specializes in these services to verify the accuracy of audits and premium calculations.
Don't let an undiscovered mistake cost your business!
We've tried to show some of the most common mistakes employers make that effect their workers compensation insurance total cost. While these may appear to be simple their effect is great. Small employers and large businesses are both impacted by increased cost because of these common mistakes.
We hope some of these concepts will help you contain your workers compensation cost!
Always keep in mind, workers compensation mistakes are made every day!
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