As work environments become safer, the number of workers’ compensation claims continues to decline. At the same time, the cost per claim has continued to rise along with the rising cost of health care in general, making the business costs substantial. Along with death and taxes, workers’ compensation is something every small business owner with employees must deal with.
As of September 2008, figures from the U.S. Department of Labor’s Bureau of Labor Statistics show that businesses spend an average of $28.87 per hour for each employee. This includes salary, as well as benefit expenses such as health insurance, vacation time, and workers’ compensation benefits. Overall, 69.7 percent (or $20.13) of the hourly compensation given to employees goes toward salary, and 30.3 percent ($8.74) goes toward benefits, with 1.6 percent ($0.47) of that benefit percentage making its way to workers’ compensation. Although 47 cents an hour doesn’t sound like much, it adds up over time and can severely impact your business expenses, particularly if this per-hour amount increases.
Job classification is the main factor determining the cost of your premiums. Roofers and construction people, who work around heavy equipment, have the highest risks, whereas office workers have the lowest risk. The basic rates for each job classification are set by each individual state, but there are more guidelines for insurance carriers to follow than there are rules.
By working with your risk management insurance carrier, you can implement both pre- and post-claims programs that will reduce your workers’ compensation costs overall. Besides implementing procedures that make your business a more desirable client in terms of insurance rates, you can save even more on your risk management costs by implementing the following practices:
- When paying an employee time and a half for overtime, you may only have to report the regular wages, decreasing the amount of payroll that determines your insurance premiums.
- Implement programs that bring workers back into the workforce at a faster rate, even if it means bringing them back part time or in a limited capacity. Rising workers’ compensation costs are primarily due to increased use of benefits and longer duration of disability. The more time an employee spends on disability, the more wage replacement and medical services increase in cost.
- Look for a pattern to claims. Do some locations or areas in your business have fewer claims than others? Determine the reason why. Reducing the number of workers’ compensation claims gives your business a better safety record. This makes you a much better risk to an insurance company, making it more likely they will give you better rates in the long run. Overall, this is the best way to reduce your risk management expenses.
Checklist: Additional Factors in Insurance Premiums
The workers’ compensation insurance premium is negotiated between the business and the insurance carrier and can be increased or reduced depending on factors that insurance companies consider when calculating workers’ compensation premiums. These factors include the following:
- Level of employee health insurance offered by the employer
- Performance of regular safety checks
- Encouragement and reinforcement of safe working behavior in employees
- Emphasis on the use of safety procedures and proper equipment
- Instruction manuals that detail safety procedures
- Promotion of effective new-hire selection processes
- Employee education and training
- Management accountability
- Elimination of employee risk taking
- Employer’s safety record
- Elimination of hazards that cause injuries
- Consistent internal policies and medical referral procedures
- Return-to-work programs
Tip: Double-Check Job Classification Codes
A common but easily avoided classification error that affects workers’ compensation is to assign the code of office clerk to all administrative personnel. Not all administrative personnel perform the same job duties, and there are different classifications that carry different levels of risk. A file clerk, for example, typically doesn’t use a keyboard. A data entry clerk, on the other hand, usually sits in front of a keyboard and a computer all day long and runs a much higher risk of carpal tunnel injury. To be certain you’re classifying employees correctly, use the most up-to-date classification code book for your state and thoroughly familiarize yourself with the appropriate codes for your employees.