by Rob Wilson
One of the biggest expenses affecting small businesses is workers' compensation insurance, which covers expenses associated with injuries to employees while on the job. In fact, 33 percent of small business owners identified workers' compensation as a critical problem in 2004, according to the National Federation of Independent Businesses (NFIB).
Workers' compensation includes medical bills, as well as payment for lost time and for any permanency of injuries. Coverage is required by all states and rates vary.
In 2004, rates ranged from 5 percent to 40 percent of payroll, depending on the state where coverage is provided. Average premiums continue to rise in most states just behind labor costs and health insurance while coverage availability decreases. In most cases, the rate is charged against all payroll, including double time. This is a fast-growing expense across industries, and one that cannot be ignored.
So what can a company do to protect itself? Keep your claims to a minimum and be diligent about your policy's coverage.
Make Safety a Priority
If you have not done so already, develop a written safety control program. Better workplace safety leads to fewer claims, and fewer claims directly affect your workers' compensation rate.
A disciplinary program also should be incorporated into the safety program, one that holds employees accountable for breaking the rules or rewards them for correctly following safety procedures.
A critical component to success is that the program needs to be endorsed by top management to ensure proper execution. Managers and lead workers should be assigned various responsibilities for safety enforcement in each work area.
Holding regularly scheduled safety meetings and/or discussions about specific issues related to the work environment will convey the importance of safety at the company and the expectations to comply.
Take Action When a Claim Occurs
When an employee experiences an injury on the job, complete an accident report with as much detail as possible. Take photographs of the scene and talk to any potential witnesses about what happened. The first report of injury should be sent within 24 hours to the insurance company to ensure prompt handling and to help fight fraudulent claims.
A drug test should be required of the employee. While a positive drug test will not allow you to deny a claim in most states, it will certainly help. (You also might consider conducting random drug testing for all employees. Be upfront about telling all potential employees that submitting to random drug tests is a requirement for employment, which should decrease any potentially drug-related claims.)
Be Aware of Possible Fraud
If you suspect fraud, immediately inform the insurance company. Review your policy for accuracy of the claim. Realize that sometimes it pays to investigate what you suspect is a fraudulent claim.
For example, a worker who filed a claim for a bad back was later photographed digging out a tree stump. It's unlikely the employer could have won the suit without the photographic evidence.
Take Action Behind the Scenes
It's a good idea to review your current workers' compensation policy for accuracy and ensure the claimant is not a repeat offender. Is the payroll correct? Are the class codes correct?
Second, check your experience modification factors (or "experience mods"). Every business that spends more than $5,000 on workers' compensation has an experience mod. Each company starts at 1.00 and it goes up or down depending on its claim experience. The lower your claims, the lower your experience mod. Your rate is typically multiplied by your experience mod to arrive at the final rate. For example, if your rate is $10 and your experience mod is .8; your rate becomes $8. Make sure your experience mod is correct. Are the claims listed actually yours? The "mistake" ratio in the insurance industry is higher than 27 percent, so review everything carefully. Errors that go unnoticed can cost you big money.
Third, explore a deductible. Most deductibles vary from $1,000 to $500,000 per claim and are charged from the first dollar incurred. Premium is typically reduced by 4 percent for a $1,000 deductible per claim.
Consider a PEO
With all this to worry about, it is not difficult to understand that there is a growing trend in small businesses to outsource these functions to a professional employer organization (PEO). Advantages for the business owner include reduced premiums, safety and loss control expertise, nationwide coverage and professional payroll processing and tax filing.
By outsourcing to a PEO, a company becomes part of a much larger purchasing entity and thereby receives the benefits of its buying power. PEOs handle payroll processing and payroll tax filings, and are experts on the latest updates and changes in this arena. Additionally, they provide human resources services.
Since the majority of small businesses do not have a full-time human resources professional in staff, they often need advice on issues ranging from loss control and safety, to hiring and firing, employment practices, performance appraisals and wage issues. A good PEO will be able to provide you coverage and assistance in any state where you do business. This way, you can concentrate on what you do best: running your business.
Rob Wilson is president of Employco Group, a professional employer organization (PEO) that provides health benefits, payroll administration, workers' compensation programs and personnel records management to small businesses. Employco serves clients in more than 30 states nationwide. Rob can be contacted at [email protected].
Sidebar: Using Software to Track Workers' Compensation Costs
Mark Ver Meulen believes the best way to reduce workers' compensation costs is to ensure all incidents and associated costs are tracked and trended.
"There are two aspects to reducing workers' compensation costs," says Ver Meulen. "One is loss control. Once an injury occurs, controlling the costs associated with that injury. The other is loss prevention. That's done through incident and near-miss investigation, taking a look at the root cause of incidents and implementing steps to prevent them from reoccurring."
Ver Meulen is vice president, sales and marketing of Per Datum Inc. of Hilliard, Ohio. Per Datum offers a software program Prognos for managing safety, workers' compensation and disability programs. The software's modular design enables Prognos to accommodate incident reporting and OSHA compliance reporting at a single facility or handle enterprise-level safety and workers' compensation program management. The features offered by the software employee/supervisor incident reporting, OSHA compliance reporting, incident investigation tracking, transitional work management, claim administration and medical case management could serve as an outline for employers who are trying to manage and reduce workers' compensation costs.
When an Injury Occurs
"Quick and accurate incident reporting is key," says Ver Meulen. "Employers need to get proactive on this because it has a direct impact on the overall cost of the claim."
He suggests that a system be implemented that allows different managers to see the notes about the incident. For example, the safety manager needs to know what's going on with the employee and the claim, as does the human resources professional, the employee's direct supervisor or manager and others, on an as-necessary basis.
The return-to-work process needs to be managed, says Ver Meulen, to minimize the time away from work. "Track the return-to-work process. Manage a transitional work program. All of that helps get the injured employee back to full function quicker," he says.
Ver Meulen also suggests benchmarking standards for return-to-work. "The more specific you are about return-to-work policies and procedures, the better," he says.
Have a system in place to manage communication and action items. Different departments within the company need to communicate, and the company needs to stay in contact with the injured employee and his or her medical providers.
Ver Meulen notes that it is important to manage core costs, such as wage replacement and medical bills, closely. Import information about claims management provided by your insurance carrier or workers' compensation program administrator back into your system, he says. It will help you track and trend near-misses, OSHA recordables and direct and indirect workers' compensation costs. If your program is self-administered, then ensure that medical bills reflect proper procedure codes and diagnostic codes.
Employers need to keep in mind the interaction between workers' compensation and short- and long-term disability claims under the Families and Medical Leave Act (FMLA). "Workers' compensation counts against FMLA," says Ver Meulen. "If an employee combines short-term disability under FMLA with workers' compensation, then he's double-dipping."
Loss Prevention
Obviously, says Ver Meulen, the biggest cost-savings comes from loss prevention.
"Investigating near-misses and incidents that don't involve loss and implementing actions to prevent them in the future is important to cost savings," he says. "Track near-misses and facilitate a change in behavior to prevent them from occurring and you'll prevent future injuries and reduce your costs."
He noted that companies that don't consolidate incident reporting in a central location are making a mistake. "We've found that at some companies, information is available in a lot of different places. No one sees the complete picture. It is fairly easy and cost-effective to have systems in place that track incidents and their causes, but there often are political issues involved within the company. Managers don't want to give up control over 'their' information. If a system is put in place that requires all data to be entered into one database, then you can get a much better overall view of workers' compensation losses and what you need to do to prevent losses."