19 easy strategies to reduce workers compensation costs in 2021

Updated: Mar 29

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

  1. Overview

  2. Introduction to Workers compensation claims

  3. What is the workers’ compensation act?

  4. Which injuries are covered under the workers' compensation policy?

  5. What is the treatment received by injured workers?

  6. What are the benefits received by injured workers?

  7. Do you need to buy worker’s compensation insurance?

  8. What costs do workers' compensation cover?

  9. What is the average settlement for workers comp?

  10. What causes workers' comp insurance costs to rise?

  11. How to reduce workers' compensation costs?

  12. Wisely handpick the insurance policy which suits you the most

  13. Ensure that you are following workers’ compensation claims management best practises

  14. Proactively reduce the number of accidents

  15. Have a physical injury methodology set up

  16. Put an impetus and motivation program for recently recruited employees

  17. Actualize policies for quick return to work

  18. Ensure you’re availing discounts available in your state

  19. Audit your worker orders

  20. Envisage and prevent fraudulent claims which sum up to 80% of the workers comp costs

  21. Motivate employees with well being rewards

  22. Analyze the effect of your Experience Modification Factor (EMF)

  23. Understand how insurance carriers view your claims history with benchmarking reports

  24. Incorporate an employee wellness program

  25. Proactively Predict cost of claims and set aside premium amount

  26. Use AI to proactively assign your most experienced adjuster on claims which may turn up severe

  27. Grapple with recidivism (or) reopening rate

  28. Instruct, Train and educate your employees

  29. Gather feedback from workers

  30. 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:

  1. Insurance premium amounts

  2. Payments made under deductibles

  3. Administrative costs of dealing with claims

  4. Making reports to the state and insurer


Obligations to the Employer

  1. Most states require the business owner to keep a record of the accidents.

  2. 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.

  3. 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:


  1. The state you work in

  2. The industry your business participates in

  3. The annual payroll of your business

  4. 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.





reduce workers compensation costs by wisely handpicking the insurance policy.webp
reduce workers compensation costs by wisely handpicking the insurance policy

2.Ensure that you are following workers’ compensation claims management best practices


Adjusting your claims according to the best practices followed is one of the most important things. You need to ensure this by checking with claims management. In fact, this can drastically decrease the amount of payout by about 50 percent.


Such savings are very important for a business. These best practices often include simple tasks to minimize your expenses. Besides, they also help in finishing the process smoothly. Here are 4 best practices to ensure that you save on workers compensation claims:

  1. Having in-person contact with the medical professionals and the employees. This way you can resolve any issues that might arise in the course of action.

  2. Make sure that the paperwork is complete and filed on a time-to-time basis.

  3. Verify the coverage of each claim.

  4. Keep track of all the work completed on every claim.

reduce workers compensation costs by following best practices.webp
reduce workers compensation costs by following best practices


3.Proactively reduce the number of accidents


Focusing and cultivating a culture of safety is one of the best ways to reduce workers’ compensation costs. It also boosts the morale of your employees. However, it is not easy to achieve a sense of safety. You can refer to our top 4 recommendations to reduce the number of accidents:

  1. Provide your employees with sound knowledge of essential resources and best practices.

  2. If you do not have them in place, arrange for periodic safety checks.

  3. Regular safety checks ensure that your employees are safe in the business premises.

  4. You can schedule more comprehensive safety checks monthly once.

While focussing on safety reduces the number of accidents, it also shows your workers that you care for them.


reduce workers compensation costs by reducing number of accidents
reduce workers compensation costs by reducing number of accidents


4.Have a physical injury methodology set up


It is necessary to be always prepared for injuries and accidents. It is also a crucial part of the safety culture at your business. Everybody should know the role assigned to them in case of an onsite work injury. The plan should allocate tasks to all the employees- supervisors, other staff, and the claims adjuster.


Once you have a plan ready, employees can respond in a proactive way that will reduce the gravity of workplace accidents/injuries. In addition, the employees can also be assured that they will be taken care of in the unfortunate event of an accident.


reduce workers compensation costs by deploying injury methodology setup
reduce workers compensation costs by deploying injury methodology setup


5.Put an impetus and motivation program for recently recruited employees


Newly hired employees often tend to benefit from the incentive programs. Such programs reward them for their knowledge of safety protocols. This could also be done to the older employees. You can encourage them to help the new employees in learning about the safety culture via group incentives.


Such incentives can also reduce employee dissatisfaction at the workplace. The incentives speak of your business’s values and concern towards them. Encouraging such safety-oriented incentives can make the business premises more secure.


reduce workers compensation costs by putting an impetus or motivation program
reduce workers compensation costs by putting an impetus or motivation program


6.Actualize policies for a quick return to work


Research shows that businesses which are in contact with injury-affected employees (during their time away from work) are more likely to have lower costs on claims. It is always great to have a program that encourages and motivates workers to return to work as soon as their illness fades away.



Upon returning to work, the injured worker will begin earning at his full potential again. The company also needs to pay him less money if he returns earlier. Therefore, it is a win-win scenario for everybody.



reduce workers compensation costs by putting an impetus or motivation program by actualizing policies for quick return to work
reduce workers compensation costs by putting an impetus or motivation program by actualizing policies for quick return to work

7.Ensure you’re availing of discounts available in your state


Each state has varied rates for the different classifications of different businesses. However, you need to check with your state policy management for any discounts. Most states offer discounts to certain types of businesses.


You can check if your state has a discount provision to provide employer workers’ compensation for companies that promote safety. For example, some states are known to offer discounts to employers that provide a drug-free work environment.



reduce workers compensation costs by putting an impetus or motivation program by predicting fraudulent claims with klear.ai
reduce workers compensation costs by putting an impetus or motivation program by predicting fraudulent claims with klear.ai