Lower Your Workers Compensation Costs | Get a Free Quote |
by Karen Murphy, MostChoice.com State regulations leave you very little room to navigate when it comes to lowering the cost of worker's compensation insurance. How much you must cover and for how long is completely out of your hands. Even the basis for your premium is calculated by a government bureau by performing a thorough analysis of your payroll and claims history. You do, however, have a some control when it comes to saving money on your workers compensation coverage.. To begin with, you should consider enlisting the help of an agent. An agent can help match you with an inexpensive insurance company that understands your business, can work as your advocate with the insurance company, can help guide you through the classification process, and can lead you to credits that lower your premium. That aside, it is very important for you to understand the process of setting insurance premiums and how you can ensure the best rates at various points in the process. Classification Classifications are the starting point for determining how much your company will pay in premiums for each type of job. Misclassification is a common culprit in overpaying for worker's comp. If you misclassify even one worker into a riskier job, your total premium can increase significantly. Most job classifications are established by the National Council on Compensation Insurance (NCCI). The NCCI prints its classifications of more than 700 types of jobs in a publication called the Scopes Manual. Most states use this manual as the basis for their classification schedules. Different classifications carry their own risk of injury. Thus, a business where the majority of workers have desk jobs will likely pay less than one where the majority of workers operate heavy machinery. Most businesses receive only a few different classifications to describe their operations. Because of the direct impact to your premium, it is worth your time to make sure both your company and your employees are classified correctly. Keeping track of changes in job descriptions throughout the year is also important. If a worker is promoted to a less risky position, your premiums will be lowered accordingly. Payroll, Overtime, Etc. Payroll and classifications are tied to one another in that rate classifications are based on each $100 of an employee's salary. In other words, if a secretary is classified at 29 per $100 and that secretary makes $20,000, it will cost the employer $58 in premiums. Accurate payroll records will ensure that the information used to calculate your premium is correct. Insurance companies normally audit your payroll before setting their rates, but it is a good idea to schedule audits of your payroll on a regular basis, especially if your company experiences a great deal of shifting among your employees from year to year. The payroll data used to calculate premiums should also include the correct overtime exemptions. Your workers' comp premiums are usually based on your regular payroll figures, excluding overtime. Most states allow you to deduct overtime pay to straight time for the purpose of figuring your payroll. In addition, insurers will consider employee commissions, bonuses, overtime, holiday, vacation, sick pay, incentive plans, profit-sharing plans, payments for tool reimbursements, the value of rental housing and lodging provided by an employer, the value of meals provided by employer, and the value of store certificates or merchandise given to employees. Claims History Your experience rating will affect your premiums. An experience rating compares your claims history to that of other firms in your industry. If your company's claim history is lower than the industry average, you may be eligible for a better rating, and, therefore, a lower premium. Most often, if you pay more than $5,000 per year in workers' comp premiums, your company will be eligible to receive an experience rating. Or, after two to three years, your insurance company will reconfigure your premium payments based on your claims history and safety performance. It's a good idea to double check the experience rating given to you by your insurer. You can analyze your own rating with worksheets from the NCCI. A good insurer will be vigilant about possible inaccurate claims made against you to the NCCI, since an inaccurate claim report can affect your premium for three years. Working Conditions Keeping your workplace safe and healthy can lead you to credits that reduce your premiums. (See Minimizing Risks of Claims). Some states allow insurers flexibility in rewarding companies that institute better working conditions. Check with your agent to find out if you qualify. Deductibles A little more than half of the states allow you to reduce your worker's comp premiums by paying a deductible. Your deductible, usually somewhere between $100 and $1,000, can lower your premiums by as much as 25 percent. Managed Care More than half the states now allow HMOs, PPOs and other managed-care providers to handle worker's comp claims. Using managed care can help to reduce your medical costs. Your agent can help you find a worker's comp insurance plan that uses managed medical care to treat injured workers. Back-to-work Programs It goes without saying that the sooner an injured worker returns to work, the lower your disability claims costs will be. Do whatever it takes to get your employee back to work -- lighten the work load, modify the workspace. This can also help boost the morale of the injured employee. State Insurance Pools If you have a high number of claims or if you are a company that insurers don't like to cover, you may be part of a state insurance pool. If so, do everything you can to get out of it. State insurance pools are notorious for high premiums and poor service. First, find out from your agent why you were assigned to a pool. If it is because you have a bad claims history, start instituting safety programs at your office. After a few years, you will be able to reestablish a good claims history. If it is because your industry is considered high risk, try joining a self-insured worker's comp pool. In this case, you save by not paying premiums to an insurance company, however, your company must pay for all claims. In either case, you need to work to get out of the high-risk pool. |
