If you run a business, you probably know by now that worker’s compensation coverage is required by most states. Massachusetts is one of the states that requires employers to have workers comp. All employers operating in Massachusetts are required to carry workers’ compensation insurance for their employees–and themselves if they are an employee of their company. So while this is a necessary cost for your business, there are still ways to try to cut your costs.
1. Uphold all health and safety standards. Keeping your workplace safe is the best way to not only keep your experience modifier down, but also keep your employees safe and healthy. Your company should have and enforce a written code/manual of safety that is available to all employees. If you want to take it even further, you can set-up a Safety Committee – read this post for more about the Benefits of Safety Committees.
2. Return-to-work programs can help your employees get back on their feet while keeping claim costs down. As the name suggests, a RTW program is a plan established by a business to help reintegrate injured workers into the workplace. The program typically outlines a way for workers who are unable to perform their usual job duties–due to an injury or illness–to return to work in a temporary, limited, or light duty capacity while they recover. RTW programs can provide either full- or part-time work at full or partial wages. The workers compensation insurance company may also make up any difference between the employee’s pre-injury wage and the pay earned while assigned to modified duty. The primary goal of a successful return-to-work program is to return employees to the workplace as soon as they are medically able. A well-run RTW program will afford benefits to both employers and their employees.
3. State sponsored programs may earn you a premium reduction. Check with your insurer about any available state-sponsored programs like a drug-free workplace program or something similar.
4. Review your business’s classification. Review the way your business and employees have been classified, both by rate and by experience modifier, just to be sure everything is accurate. For example, suppose your office manager is classified as a laborer since she is employed by your construction company. The rate for a laborer will be much higher than the rate for an office employee.
How Are Workers Comp Rates Calculated?
To truly ensure that you’re saving the most you can on your organization’s workers comp coverage, you should know how rates are calculated. The premium you pay for your workers comp coverage is determined by a formula. This formula takes into account your industry’s rate based on the state’s classification system, payroll expense and experience modifier which is a numeric representation of your organization’s loss history. This formula is:
(Rate x (Payroll / 100)) x Experience Modifier = Premium
First, the rate. The rate is set based on a classification system that assigns certain levels of risk to professions and industries. The more dangerous a field is considered to be, the higher the rate. A construction worker dealing with dangerous equipment will have a higher rate than office workers who don’t handle dangerous materials. (WCRIBMA Class Code Look-Up)
Your total payroll is then divided by 100. The result is multiplied by the rate (above). This is then multiplied by your experience modifier. The experience modifier is a number that represents your company’s history of loss, compared to the industry average. An average loss history should give you an experience modifier of 1.00. If you have more loss than average, your modifier will be above 1. For an example, let’s say your rate is $10, your payroll is $750,000, and your modifier is at 1.2. That would look like:
($10 X ($750,000/100)) X 1.2 = $90,000
This would give you a worker’s comp premium of $90,000 annually. Your experience modifier is one area of the equation where you can have some influence. While you obviously can’t change how dangerous people perceive your field to be, you can keep your experience modifier down by using some of the previously discussed practices.
Workers comp isn’t cheap, but hopefully by following these tips and knowing how your rate is calculated, you can save your business some money. Contact one of RG’s team members below if you have any questions, or if you want to see your coverage options.
Greg Deems | CRIS
Senior Vice President | Business Insurance
Greg Deems is a Vice President, Consultant in the Business Insurance at RogersGray. He specializes in insurance programs for complicated construction risks and property. Greg previously served as the Chairman of the Board of Directors for both the South Shore Young Professionals and the Plymouth Area Coalition for the Homeless, and remains highly involved with both organizations. Greg also volunteers for several committees at the Friendship Home in Norwell. You can connect with Greg on LinkedIn or by email.