Small Business Money Matters

The cost of workers' compensation insurance is within your control. If you take some time to understand how the system works, how your premiums are calculated, and what options are available, you will be able to keep your payments low.

Here are eight cost-saving moves to investigate with your workers' compensation insurance agent.

Make sure your company classification is correct

Check that your company and employees are properly classified. Misclassification is one of the most common reasons for overpaying on workers' comp. Non-hazardous jobs have much lower rates than hazardous ones. If you misclassify even one worker into a high hazard job, your total premium can increase significantly.

If you believe your classification is wrong, call your state's workers' compensation rating bureau and review your case with the department that handles classification.

To do independent research on classifications and rates, look for a copy of "The Scopes Manual" (formerly "The Scopes of Basic Manual Classifications") published by the National Council on Compensation Insurance, Boca Raton, FL. This manual gives descriptions of what operations are handled by the more than 700 different classifications. Most states use this manual as the basis for their classification schedules.

Get out of the pool

If your company's workers' compensation is provided through your state's assigned-risk pool... get out. Chances are you may be penalized with higher premiums and poorer service.

To leave the assigned-risk pool, the first thing you need to do is figure out why you were put there in the first place. Your insurance agent should be able to answer that question for you.

If it's because your company has a high number of claims, you should immediately begin to institute safety programs to reduce accidents. Don't expect to leave the pool immediately. You will probably have to demonstrate several years of reduced claims before anything can happen.

If it's because you're a company that insurers don't like to cover, look to join a self-insured workers' comp purchasing pool. Check with your industry association to see if one is available for groups of companies like yours.

Conduct a payroll audit

Your workers' comp premiums are usually based on your regular payroll figures, excluding overtime. Many states may allow you to deduct overtime pay to straight time for the purpose of figuring your payroll, but you may need to keep special records to do so. Check with your state office of employment for your state's guidelines.

Use a deductible

Thirty-one states permit employers to reduce their workers' comp premiums by paying a deductible -- usually somewhere between $100 and $5,000. Contact your state insurance office or your insurance broker to find out if you can use this money-saver.

Make sure your experience rating is correct

An experience rating compares your company's claims history to that of other firms in your industry. The higher your claims, the more risky you are to insure, and the higher your premiums. Make sure your insurance company is calculating your experience rating correctly. You can analyze your rating using worksheets available from the National Council on Compensation Insurance (NCCI), Boca Raton, FL.

Use managed care to reduce your medical costs

Talk with your insurance agent about finding a workers' comp insurance plan that uses managed medical care to treat injured workers. Most states allow HMOs, PPOs and other managed-care providers to handle workers' comp claims.

Get injured workers back to work

The quicker an injured worker returns to work, the lower your disability claims costs may be. You may need to modify the injured worker's assignment, or put him or her on light duty. But that's a small price to pay for returning to work. Early-return-to-work programs can also be big morale boosters -- injured workers are often afraid of being displaced or forgotten.

Institute safety programs

A company-wide safety program that reduces the number of workers' comp claims can pay off in lower premiums. Make sure your employees have and use appropriate safety equipment like goggles and hard-hats. Inspect your facilities for safety hazards, and look for other ways to stop accidents before they happen. Train people in the correct way to lift (back injuries are a common workers' comp claim) and the right way to use their computers (to reduce claims for repetitive stress injuries).


Small Business Guide


Small Business Guide

Small Business Money Matters - How to Keep Workers' Compensation Costs Down

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