19 easy strategies to reduce workers compensation costs in 2021
Updated: Mar 29, 2021
Are you looking for ways to reduce workers' compensation costs? If not, You need to understand the serious risk that these nasty claims pose to your business. When these claims arise, you need to be ready with a plan in place. After all, reduced workers compensation costs means higher profits and better employee-employer relationship.
Table of Contents
Overview
Introduction to Workers compensation claims
What is the workers’ compensation act?
Which injuries are covered under the workers' compensation policy?
What is the treatment received by injured workers?
What are the benefits received by injured workers?
Do you need to buy worker’s compensation insurance?
What costs do workers' compensation cover?
What is the average settlement for workers comp?
What causes workers' comp insurance costs to rise?
How to reduce workers' compensation costs?
Wisely handpick the insurance policy which suits you the most
Ensure that you are following workers’ compensation claims management best practises
Proactively reduce the number of accidents
Have a physical injury methodology set up
Put an impetus and motivation program for recently recruited employees
Actualize policies for quick return to work
Ensure you’re availing discounts available in your state
Audit your worker orders
Envisage and prevent fraudulent claims which sum up to 80% of the workers comp costs
Motivate employees with well being rewards
Analyze the effect of your Experience Modification Factor (EMF)
Understand how insurance carriers view your claims history with benchmarking reports
Incorporate an employee wellness program
Proactively Predict cost of claims and set aside premium amount
Use AI to proactively assign your most experienced adjuster on claims which may turn up severe
Grapple with recidivism (or) reopening rate
Instruct, Train and educate your employees
Gather feedback from workers
Communicate with your injured employees
Overview
However, reducing workers’ insurance costs is not that easy. Injuries in the workplace can be very serious and sometimes be fatal. From a simple sprain in the ankle to a serious spinal cord dysfunction, you need to be prepared to tackle the injuries. They can cost your employees productivity (if not taken care of) and can drastically affect your business.
Not surprisingly, reducing workers’ compensation costs is a highly discussed topic in the Klear.ai team to ensure that all our technological solutions are employer-centric and reap maximum profits by predicting and calculating workers' comp claims ethically using AI.
The chief reasons behind it being worried about reducing workers compensations costs:
To put this into perspective, let us take the example of an employee named David, working at your company. Unfortunately, he has suffered an electric shock. According to the Safety Pays tool, the estimated total of direct and indirect costs due to the injury is $252k.
The amount of money the employer spends on the direct costs depends on the nature of the employer's workers' compensation insurance policy. However, indirect costs such as property repairs and low self-esteem of employees are inevitable. This is another disadvantage of on-the-job accidents.
This is why reducing the cost of worker’s compensation insurance is important. This article lists down 19 effective strategies to reduce workers’ compensation insurance costs. Read ahead to know more.
Introduction to Workers compensation claims:
Before we get started, a brief understanding of the Workers Compensation Act is a must. The following sections will discuss the act and its relevance to employers and workers.
What is the workers’ compensation act?
According to the guidelines of the Workers’ Compensation Act, 1923, ‘The act deems it compulsory for certain sections of employers to pay their workmen of compensation for injury by accident.’
The act places legal obligations upon employers to ensure a safe workplace. Yet, sometimes accidents happen. In the unfortunate event of such an accident, the workers’ compensation insurance cost helps.
The workers’ compensation insurance cost assures that:
Injured workers get the required medical attention
They receive the income they lost during treatment as compensation (as they are unable to return to work)
Employers are protected from lawsuits by workers affected while working.
The policy extends support to the workers irrespective of who’s fault it was during the accident.
Which injuries are covered under the workers' compensation policy?
The injuries covered by the Worker’s Compensation Policy include:
Those sustained by employees anywhere in the premises of the workplace
Those sustained while the worker is operating in the ‘course and scope’ of employment.
For instance, if the employee involved in the accident is driving to (or) from his workplace, the death compensation claims will not be covered by the policy.
The act also pays for expenses due to illnesses from injuries at work. This includes ER visits, ambulance charges, consultation fees, and diagnosis test bills. It also protects the workers from illnesses and diseases contracted from work. For example, people who work in toxic environments can be affected due to continuous exposure to chemicals
In addition, the act also covers injuries due to other events like:
Terrorist Attacks
Natural Disasters
Workplace Violence
What is the treatment received by injured workers?
Whenever necessary, the workers are provided with complete medical care and appropriate treatment. As the medical expenses can be high, many states have taken measures to control the costs. Several utilization management rules are now in place. These guidelines lay down the diagnosis and treatment protocols for each injury. Insurance policies define a deductible to ensure that employers don't have to pay 100% of the fee incurred during the treatment of injured workers.
What are the benefits received by injured workers?
Income is compensated based on the disability of the worker. If the employee is disabled totally, permanent compensation is provided. If it is only a partial disability, temporary compensation is provided. The impairment/disability is defined on the criteria given by American Medical Association.
The Majority of the states provide benefits during the entire duration of impairment whereas some mention a specified number of weeks. The benefit amounts are generally a fixed percentage of the worker’s weekly allowance.
Policies in most of the states pay up to 66 percent of the usual weekly salaries, on a tax-free basis. Some states also provide for a ‘Loss of Earning Power’ benefit which provides partial compensation to workers if they return to work on a limited basis.
In case a worker dies during work, worker’s compensation offers death benefits for the worker’s dependents. It will also offer funeral expenses in some states.
Do you need to buy worker’s compensation insurance?
Sole proprietors and Partnership:
In most states, you are not required to buy workers' compensation. You only need to purchase if you have employees who are not owners. However, you are allowed to buy a compensation policy to cover yourself and your partners. In case you have employees working solely on commission, they need not be covered under the act.
A minimum number of employees required:
In most of the states, if your business employs less than 5 people, you need not buy insurance. However, the threshold number varies from state to state. You are exempted from purchasing mandatory insurance. In California, you’re required to buy insurance even if you're a single employee.
Texas is the only state to have no obligations on worker’s compensation regardless of the number of employees.
Family Members:
Immediate family members like parents, children, and spouse of the owner working in the business are not counted as employees (for the purpose of workers’ compensation). However, similar exceptions cannot be applied to other family members like siblings and in-laws.
Independent Contractors:
For the purpose of determining workers’ compensation insurance, many states treat independent contractors as employees. This implies that the owner will be liable if they get injured while working.
Irrespective of all these factors, it is wise to always purchase workers' compensation insurance. A single claim of a serious work injury can uproot your business. It can hold you legally liable. With premiums, you pay a predictable cost to handle this risk proactively.
What costs do workers' compensation cover?
The costs covered by workers compensation include:
Insurance premium amounts
Payments made under deductibles
Administrative costs of dealing with claims
Making reports to the state and insurer
Obligations to the Employer
Most states require the business owner to keep a record of the accidents.
Accidents related to work should be reported to the state and insurer in a specific number of days. The earlier the insurer receives the details of injury, the faster he can provide medical benefits and treatment.
You can also file a ‘first notice of injury’ with the corresponding state agency. This step is generally taken to initiate the claim process and get faster treatment.
What is the average settlement for workers comp?
The average workers compensation cost for an office worker is about 12 cents per each 100$ in revenue. The worker's compensation costs vary with the industry type. For a similar annual payroll, companies from varying industries will have to pay different amounts.
Here are some examples from the NCCI (National Council On Compensation Insurance) for your reference:
The administration fee is charged annually by the insurer and the amount is determined by the insurance carrier.
To help you understand, we shall look at the case of a painting contractor with 4 workers and a total annual payroll of $140,000:
Class code - 5474
Rate per $100- $8.99
Rate for $140,000 annual payroll - $12,586
Administration fee- $250
This sums up to a total of $12,836 for the employer.
The table and the example above depict the significant differences between business classifications. It is worth noting that the above values are for businesses with no loss or claim history.
What causes workers' comp insurance costs to rise?
In almost every state, workers' compensation rates are regulated by the state. Typically, each worker classification, i.e., the type of job, is assigned a rate per $100 of payroll, and then the rate is a multiple of that. States that are considered an NCCI state implement their own rate structure.
The 4 primary factors that will affect your workers’ compensation costs are:
The state you work in
The industry your business participates in
The annual payroll of your business
The claims history of your business
How to reduce workers' compensation costs?
Here are our top 19 tips to help you reduce workers’ compensation costs.
1.Wisely handpick the insurance policy which suits you the most
Most of us shop around for the best health or car insurance. Similarly, you have to choose the best compensation insurance policy by checking out different companies.
If your state is home to a competitive market, then it is best to talk to various companies. This way you can inquire about the monthly rates offered to you and your business. Insurance companies change their prices once every few years. Thus, it is wise for business owners to repeat the process at regular intervals and find out the workers’ compensation best practices.