Premium Damage Control for Workers’ Compensation Insurance

When you obtain workers’ comp for your business your initial premium rates are based on your company’s payroll and the average cost of insurance in your particular industry.  This premium rating will continue until your business becomes eligible for an experience rating.  An experience rating will take into account the amount of claims filed in order to determine your loss ratio compared with your industry average.  In general, an employer will need to be insured for at least two consecutive policy years to become eligible for experience rating.  Simply put, if your company follows safety prevention and files fewer claims than expected the amount of your premium will be positively affected.

Businesses can reduce their workers’ compensation costs in other ways.  One method is to split payroll for an employee who performs two different tasks, each one governed by a different risk classification.   Separate payroll records must be kept and duties specifically identified.  If an employee splits time equally between office work and a higher risk job duty, you could potentially decrease this employee’s risk factor by 50 percent for as much as half the workday. 

The same can be said for classifying workers correctly.  Misclassification is a common oversight leading to higher worker’s comp premiums.  The National Council of Compensation Insurance (NCCI) provides more than 700 job classifications in a publication called the Scopes Manual.  Most states use this manual as the basis for their classification schedules.  Since workers’ compensation premiums are directly impacted by your reported job classifications, it is well worth your time to verify both your company and employees are classified correctly.  Keeping track of changes in job duties throughout the year is also important. If an employee is promoted to a less risky position, your premiums will be lowered accordingly.

Since your workers’ compensation premiums are based on payroll you may be able to reduce your payroll totals by deducting overtime pay.  Some states will allow you to make this conversion for purposes of calculating your payroll.  Again it is important to keep detailed records to produce accurate payroll data. 

Approximately thirty-one states allow employers to reduce their premiums by paying a deductible that is generally between $100 and $5,000.  Your state insurance department or insurance broker can inform you if this is an option for your business.

It is also important to maintain an excellent safety record.  Utilize proper equipment and clothing to prevent accidents and injuries.  Be sure to train employees well in safety practices and procedures.  Create a safety manual for all employees.  And always follow the Occupational Health and Safety Administration guidelines related to your business.

Since many states have different regulations that govern workers’ compensation it is important to consult expert advice in this area.  An experienced agent that understands your business can work as your advocate with an insurance company, guide you through the classification process, and lead you to credits that lower your premium.

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