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Did you know that workers’ compensation isn’t really a standard insurance in the sense that it doesn’t actually pay for your claims? It simply finances them.
And in fact, it actually finances them at a high cost. So workers’ compensation never actually really saves you money. It just ends up costing you more.
Which makes workers’ comp one of the most frustrating expenses you have as a business.
In Massachusetts, you are required to have workers’ compensation insurance -- that means you have no choice but to pay for your workers’ comp premium (which can sometimes be costly) and then pay even more in premium if your employees do get injured.
We understand. For one, we are a business that has to have workers’ compensation like any other. We also happen to be a business that helps hundreds of other businesses get and manage their workers’ compensation.
So we also understand that you are probably always looking for ways to save on workers’ comp. In this article, we’ll outline all of the tactics you can use to save money on your policy.
Table of contents:
- Prevent injuries
- Manage injuries after they happen
- Know included vs. excluded remuneration
- Make sure your experience modification factor is correct
- Understand the audit process
- Separate payroll (when allowed)
Prevent injuries
Like we mentioned, workers’ compensation doesn’t actually pay for your employee injuries -- it just finances them. That is because with each injury your company experiences, your premium will increase by more than the medical care for the injury even costs over time.
That’s why the most effective way to reduce workers’ compensation costs is to prevent injuries in the first place.
And the easiest way to reduce claims is through a thorough safety plan. This should include risk identification and management and ongoing safety training with all employees. You could even consider establishing a safety committee or using a safety or incident management software.
Manage injuries after they happen
You can’t prevent all injuries, so it is also important that you know how to properly manage injuries when they do happen.
This is because in addition to claim frequency, claim length can also increase your workers’ compensation cost. Insurance companies want as few open claims as possible, so lengthy claims will negatively impact your EMR, therefore your workers’ comp cost.
That’s why you should have a plan in place to help return injured employees to work as soon as possible. This could include a light duty policy, which will allow employees to return to work without having to do any duties that will aggravate their injury.
If you work with Berry Insurance, we can provide sample safety plans, return to work plans, and other safety tools to help employers manage claims before they ever become a problem.
To expedite claims as much as possible, you should make sure you are aware of how the claims process works and be prepared to navigate each step as soon as you are able to. If you want to familiarize yourself with the claims process, check out this article: What to Do When an Employee is Injured (and How to File a Workers’ Compensation Claim).
Know included vs. excluded remuneration
When it comes to your payroll (remuneration), some forms of pay are included in your workers’ comp policy while others are excluded.
A few forms of included payroll include:
- Wages/salaries
- Bonuses
- PTO
- Sick pay
A few forms of excluded payroll include:
- Tips/gratuities
- Payment for active military duty
- Employee discounts on goods
- Work uniform allowances
Knowing what is and is not considered payroll in terms of workers’ comp can help you make sure you don't overpay. That way, you can make sure your payroll is calculated correctly by both your payroll department or company, and your workers’ comp auditor.
Make sure your experience modification factor is correct
An experience modification rating is a metric used to calculate a company’s workers’ compensation premium, based on their number of claims and the claim costs over a three year period.
It’s kind of like a credit score for workers’ comp!
The number represents a ratio of a company’s cost of workers’ compensation claims compared to companies of similar size and industry.
Essentially, it portrays the risk of insuring or working with your company, compared to your competitors.
And, it is important to you because it is a large factor in determining your workers’ comp premium. So that means if it is incorrect, you could be paying more than you should be on your premium.
So how do you make sure it is correct?
You’ll need to take a few steps.
For one, you’ll need to obtain detailed loss runs valued as of their correct valuation date (6 months pre-policy effective) to make sure that the total incurred and reserved medical and indemnity payments match the experience rating figures that the insurance company submits to the state.
You’ll also need to verify that the audited payroll matches what the state has. If anything doesn't match, it could mean there is a mistake that is driving up their EMR.
You might not think this could happen, but you’d be surprised to know that it happens pretty frequently.
A good commercial insurance agent can help to make sure your EMR is correct.
Understand the audit process
If you don’t understand the audit process, you could be losing out on a lot of money.
The audit process is complicated and human error isn’t uncommon.
For example, your business could be misclassified, costing you more money. Some of your lower payroll could be classified as a higher classification, or your entire payroll could be categorized as the highest classification.
In fact, we’ve had cases where we were able to save companies thousands on their workers’ comp premiums because their prior agent had them misclassified.
The auditor could also forget to take out overtime, charge for a subcontractor they shouldn’t have, etc.
To avoid this, be sure you have the following organized before the audit:
- Double-check all your COIs for subcontractors to make sure that none are without coverage, or are for dates that don’t include your policy term. If that is the case, request updated COIs immediately.
- Make sure your payroll records do NOT include any “excluded remuneration” – overtime, rewards, tips, severance, officer exemptions, payments for active military duty, etc.
After the audit process, be sure to review all the auditors worksheets for accuracy. Your insurance agent should be able to help you to make sure you weren’t overcharged.
For more detailed information about understanding your audit, read this article: 5 Steps to Get Through Your Workers Comp Audit.
Have an upcoming workers’ comp audit you want to prepare for? Download our workers’ compensation audit workbook to help you organize all of the information you need for your audit.
Separate payroll (when allowed)
If an employee does multiple tasks as part of their job description, normally workers’ comp will charge their entire payroll to the highest rated class code.
But in some industries (construction and agriculture), if the employer keeps detailed records of pay assigned to the different tasks, they can separate that out.
If your employees’ work isn’t all assigned to the higher class code, it could save you some money.
Manage your workers’ compensation with an experienced agency
Workers’ compensation is complex. (I’m pretty sure I’ve written that sentence in every single workers’ compensation article I have ever written -- but that’s because it’s true).
A lot goes into workers’ compensation, and if you want to manage the cost of your insurance, you have a lot to keep track of and a lot of work to do.
But it shouldn’t entirely be your job to manage all of these details -- that’s something your insurance agent should really be doing for you.
To learn more about what you should expect from your commercial insurance agent, check out this article: 7 Things your Workers’ Compensation Insurance Agent Should be Doing for You.
