Posted on May 17, 2014
As a mandatory insurance coverage for companies with employees, workers compensation insurance costs can significantly impact company budgets. While workers comp rates are calculated based on a fixed formula specific to each state, there are steps business owners can take to reduce workers compensation costs.
Each state develops workers comp rates based on industry classification and the company's experience known as an experience modifier. The experience modification is determined by a company's history of workers comp claims. It will either reduce or increase class rates. Business owners can affect their own experience modification rate by reducing their claims. With a low experience mod, companies can actually reduce the class rates thus resulting in lower premiums.
Written Safety Program and Training
Developing a written safety and active training program is one of the best ways to reduce claims of work related illnesses and injuries. Educating employees on how to recognize, avoid and prevent unsafe conditions within the workplace helps to reduce injuries. In other words, taking steps to prevent workers compensation claims in the first place can go a long way in keeping premiums as low as possible.
Review Industry Classification
Depending on the specific business, some companies may have multiple classifications for their employees. By reviewing the assigned industry classes, business owners ensure they are properly classed. They should also make sure payroll is reported properly for each employee. For example, a construction company may have clerical workers in the office. The owner would want to make sure that payroll for clerical staff is placed under the clerical class rate while the remaining payroll for construction workers is placed within the appropriate construction class rate. Companies may lower their premiums if they have misclassified employees or have been reporting all employees in one category.
Group rates are offered by many states for those companies that are members of a specific group. National trade organizations for specific industries and special safety groups provide their members with group discounts. Some groups require companies have an experience modification to qualify so check with your broker or workers comp carrier to find out about group memberships and requirements to join.
While companies have very little control over industry classifications and state rates, the above steps can help to manage premium costs. The most important part an employer can contribute to reducing workers compensation premiums is to work hard on safety in the workplace and preventing claims so that the company experience mod is as low as possible.