One of the questions that is always asked is "do I need workers compensation"? State laws set workers compensation requirements state by state. Workers compensation used to be known as "workman's comp", but that has changed through the years to just workers comp or workers compensation. Workers comp is as simple as this; if you have one single employee, you should carry workers compensation.
The cost of the workers compensation policy premium, will be less than the cost of you being liable for all costs in relation to that employee's injury. Let the expert at your work comp carrier work with your employee and guide them on setting up their medical visits, rehabilitation,…
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...employee and guide them on setting up their medical visits, rehabilitation, paying their lost wages, and paying their medical bills so you're not liable for those items.
It's important to know there's three major components to your workers compensation premium. The first one is the class code. The work that your employees do determines their class code.
A drywaller's class code will be different than a roofer's class code. A clerical worker's class code, will be different than a driver's class code so on and so forth.
Each workers compensation class code will have its own price per dollars in payroll. Knowing the price you pay for the one hundred dollars in payroll, can help you predict what changes in your workforce will have on your workers compensation premium.
Many times, multiple class codes are used on the same policy with payroll divided between those class codes. If your payroll or tracking system does not break down payroll for each class code the price used will default to the highest rated class code.
This mainly comes into play if one employee does activities that fall into multiple class codes. An example of this is, you have an employee that does roofing for four hours and then switches to painting for four hours. You must have those hours split out by class code in your payroll software to take advantage of painting being at a lower rate than roofing.
Check with your workers compensation provider on their rules and splitting out payroll between class codes for an individual employee.
Payroll is the second portion of this. The payroll is multiplied by the class code price to determine the premium paid. This information allows you to forecast the impact of hiring new employees.
Determining the class code for the new employees is done by multiplying that class codes price by the new employees payroll and you'll have a good idea of how your work comp policy will change or how it will change.
When you start a work comp policy in many cases you're asked to project your payroll for the entire year to determine your annual premium. At the end of the policy period, the workmans comp company will perform an audit.
If your payroll was higher than projected, the audit will result in additional premium. If the payroll was lower than projected, the audit would result in a refund of premium.
If you anticipate large fluctuations in your payroll, make sure you contact your insurance broker. Payrolls can be adjusted during the policy year. These adjustments can help reduce the impact of an audit at the end of the year. Ask your carrier if they offer a pay-as-you-go option.
Pay-as-you-go does require more administrative work on your end due to the monthly reporting requirements, however pay-as-you-go can eliminate negative audits since the monthly reporting payroll minimizes those fluctuations that you might see in your payroll.
If you have a slower time period or season, you actually pay less for your workers compensation because there's not as much payroll going out. If you have an insanely busy season, your premium for your work comp will increase, however you don't have to worry about that increase coming at the tail end of your policy via an audit.
The third thing that's built into that price is what's called an experience modification factor. We call it an e-mod you earn an e-mod over time if you're a new business.
If you have good work practices that result in little to no claims, your experience modification factor over time will go below one which will equate to lower premiums.
This factor is made to reward employers that promote safe work practices. If you're competing for a job with one of your competitors, the fact that your emod is lower than theirs may allow you to price your bid more competitively.
The emod is a long game strategy and crucial to the most successful business owners. Keeping your rates low is more about your business practices than anything else. Keeping a consistent focus on safe work practices and have safe work practices in place rolling every single day, have a zero tolerance drug policy, have a seat belt policy, cell phone use policy. Use regular safety meetings insist on the use of personal protective equipment inspect your equipment for proper function and that all safety guards are in place not sure where to start most work comp companies will have sample policies for you to use.
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