Controlling your business’s costs is essential to a healthy bottom line. While you can implement many cost-saving tactics that help you save money, one option is to reduce the cost of your workers’ compensation policy.
Yes, this coverage is required by law, but that doesn’t mean it has to cost you an arm and a leg.
Too often, business owners and decision-makers assume that the costs for their workers’ compensation policies are set in stone. This is true only to an extent.
Your projected payroll determines the amount of your premium. However, there are mitigating factors that can increase (or decrease) your costs.
In this article, we’ll explore six important tips to help you reduce the cost of your workers’ compensation policy and keep that coverage affordable.
Insurance companies must make informed decisions when it comes to workers’ compensation coverage.
What that means is your insurance company will project risk for your workers and then base your premium costs on those projections. Individual employee roles affect their risk of injury.
For instance, a clerical worker has a much lower risk of suffering a workplace injury than someone who routinely hangs HVAC ductwork within high-rise office buildings.
An external salesperson who routinely drives long distances and visits client or customer locations has a higher risk level than an internal salesperson who communicates with potential leads by phone or email.
To accurately represent risk levels, insurance companies created specific employee classification codes. When applied accurately, those codes represent the real-world risk each employee faces and ensure the appropriate amount of coverage and premium costs.
However, when those codes are inaccurate, you can see unnecessarily high costs.
For example, what if your internal sales team was incorrectly classified as handling outside sales? That could drive your premiums very high.
To combat this, you’ll need to work with your insurance agent to verify that each employee is classified properly.
Want to truly save money on your workers’ compensation insurance?
The best solution is to operate a safe business. The only way to do that is by having a formalized safety program. Achieving this will require forethought, strategy, and effort, but that pays off in the end.
First, create a written safety program that details processes, procedures, and expectations for all employees. Note that your program may need to vary from department to department.
For instance, office staff might have very different requirements from automotive mechanics working in the shop at your dealership. Administrative staff will need to follow procedures from your team of plumbers.
However, it goes deeper than creating specific steps/strategies for employees in different areas of the business.
You also need to consider industry rules, government regulations, and more. Here’s a quick breakdown of what you’ll need to do:
With a robust safety program in place, adherence to OSHA standards, regular meetings, and keeping safety at the top of mind, you can dramatically reduce the rate and risk of injuries within your workplace, thereby controlling workers’ compensation costs.
Injuries and accidents will happen, no matter how careful you are. It’s important that when an employee is injured on the job, you provide them with a road to recovery.
A return-to-work program is precisely what it sounds like: a strategy that helps injured employees recuperate from their injuries while performing light-duty tasks.
You continue to pay the employee for the work performed, so the insurance company only must cover medical costs and not lost wages.
This has a direct, measurable effect on your rate. However, your program must be structured correctly for it to be effective.
Here are a few key pointers:
This is one of the most effective yet least known ways to reduce a business’s workers’ compensation insurance costs – underwriters routinely ask whether a company has a formal return to work program and reduce rates if it does.
Your business’s Ex-Mod (experience modification rate) is an important factor that affects your workers’ compensation costs. Essentially, this is a calculation that compares your specific loss history with those of similar businesses.
The more frequent and/or severe your losses, the higher your Ex-Mod will be. In turn, that drives your workers’ compensation premiums up.
While you cannot eliminate your Ex-Mod, you do have some control here. The simplest way is to reduce the number and severity of your workers’ compensation claims.
A formal safety program and a return-to-work program are two of the keys to achieving that. It’s also important to maintain that reduction over time.
After several years in business with few incidents (and limited severity), you’ll find your rates reduced.
Understand that your Ex-Mod takes effect during the middle of your policy, by renewal or policy anniversary. In contrast, a credit modification due to lower claims applies to your premium.
According to the US Bureau of Labor Statistics (BLS), there were 305 fatal workplace injuries in 2018 due to drugs or alcohol (the most recent year for which statistics are available).
This marked a 12% increase from the previous year. Further, the BLS notes that up to 65% of all workplace accidents are related to drug and alcohol use.
By creating a formal drug and alcohol-free workplace policy and then ensuring it is followed, you can dramatically reduce the risk of employees being injured on the job.
In turn, that will reduce your risk level and the amount you pay for workers’ compensation insurance each year.
Creating a no-tolerance policy does require a bit of planning. It should spell out the ramifications of infractions and encourage employees to seek help if they are struggling with substance abuse problems.
Finally, make sure that your policy is not just punitive. It should provide support for employees returning to the job after combating substance abuse problems.
The final way to reduce your workers’ compensation insurance costs is often overlooked because business owners and decision-makers don’t realize it’s an option.
Ask your agent to have dividends applied.
The rebate process is simple. You pay the full amount upfront, and then receive a dividend after the audit.
While there are specific terms to consider, it’s possible to get back 5% or more of your audit.
Workers’ compensation insurance is mandatory for most employers. However, that doesn’t mean it has to cost a fortune.
We’ve covered many ways to reduce your risk level, the number of accidents employees experience, and the severity of those accidents.
By creating a formal safety program, along with a return-to-work program and a no-tolerance drug and alcohol program, it’s possible to dramatically reduce your risk level.
Don’t forget that you can also recoup some costs in the form of rebates with every audit (make sure to audit your workers’ compensation insurance annually so that you’re not overpaying and that you’re able to capture those rebates).
A proactive approach, a deep commitment to workplace safety, and a compassionate stance toward helping employees recover from injuries, as well as from substance abuse problems, will not only help you cut your workers’ compensation costs, but positions you as an employer of note.
That’s a win-win, as you’ll be able to attract top talent and retain key employees for longer, while simultaneously operating a safer workplace and paying less in premiums.
If you want us to take a look at your business and see how we can help you cut the cost of your policy, fill out a free instant quote and we’ll be in touch.
Note: The information provided in this blog is intended for general informational purposes only and is not a substitute for professional legal or insurance advice. Laws and regulations regarding workers' compensation insurance are complex and vary by state and by specific circumstances. Therefore, readers are encouraged to consult with a qualified legal or insurance professional to obtain advice with respect to any particular issue or problem they might have.
Mordechai Kamenetsky, co-founder and lead agent of Kickstand, is recognized as an expert in workers' compensation. He is passionate about helping small businesses manage risks and lower their workers' comp costs. In his articles, he educates readers and clients on the intricacies of workers' comp insurance.