Every state has their own requirements for workers compensation however, majority of states such as Pennsylvania require employers to acquire workers compensation when they have 1 or more full-time employee. Workers compensation can be a confusing system to navigate especially during the quoting process and what discounts are available to you.
The way your workers compensation is calculated is based on the following formula
(Class code rate * Payroll/100 * Experience Modifier) + Discounts/Surcharges = Final Premium.
The class code rate is determined by the type of work your company does and the state it falls under. Majority of states fall under the NCCI classification system however some states like CA and PA are independent and finally states like Ohio is monopolistic meaning that you can only get workers compensation through the state. While the formula may look simple, getting the variables accurate can be a difficult task. Many companies often are classified into the wrong class code which can drastically increase their rate. For example, it should be easy to see the difference between a machine shop and a drug store employee. However, there have been instances of incorrect classification coding that have gone amiss without a solid auditing system in place. Thankfully many brokers and carriers do their own auditing to attempt to be as accurate as possible.
Payroll is another one where on the surface seems straight forward but questions arise such as: "Do part-time workers or seasonal workers count toward payroll?" This is often determined state by state so it's best to check with your broker on your state laws around how to count payroll. Majority of the time, both part-time workers and seasonal workers will be lumped into workers compensation coverage. However, if you have independent contractors then contractors are not eligble for workers' compensation coverage meaning you do not need to add them into your total payroll.
The Experience Modifier, or Ex Mod, is set by the carrier based on your historical losses and determines how "safe" of a company you are to insure. If a company has an Ex Mod of 2 then they'll be stuck paying out double the premium than a safer company with an Ex Mod of 1.
Lastly, the discount/surcharge comes into the equation. Your insurer can opt to do an audit of your losses and payroll at the end of the year and if you ended up hiring more people than anticipated they can charge you more. On the other hand some insurers have work safety programs that can give you discounts which we'll get into below.
Now let's get into ways to save money off your workers compensation.
The easiest way to save money is to shop around for competitive rates. Traditionally, you have to talk to a broker or agent to inquire about workers compensation but these days you can get a quote online through services like Pie Insurance, Insureon, Next Insurance, your payroll system, etc.
Be sure to ask if they have a pay as you go plan which calculates your premium based on your actual payroll from your payroll provider for the month. This way you're not caught paying higher costs if you have seasonal workers.
Each state has their own variation but often times the state mandates that if you have a safety program in place such as a safety committee and drug free workplace protocols you can be eligible for 2-7% discounts off your premium for either programs. Make sure you ask your broker or agent about these programs as they can be easy ways to save your money. If you are looking for what your state programs require send us a note at VIT and we can help your company get those savings. Having a solid incident management program, as well as Job Safety analysis documentation, can help show your insurer your company has a healthy safety track record.
By creating a safety committee and utilizing tools to understand where injuries might occur instead of when they occur will greatly help both boost employee morale but ultimately reduce your Ex Mod that creates savings. In addition, moving to software tools can help reduce infrastructural burden of auditing using paper and pen. In industries where strain and sprain types injuries are both high in frequency and severity tools like VIT's Arc to help employees understand high risk behaviors and capture unsafe movements has helped some companies reduce injuries by almost 30% and reduce loss days by over 30%. Encourage employees to let you know root issues prior to injuries. These can be in the form of pain surveys or safety coaching surveys where you ask your workforce if they are feeling pain in any particular areas of their body and for how long. Using analytic tools, you can start performing root cause analysis on problematic areas of your workforce or gaps of training knowledge that can prevent injuies before they happen.