One of the most important expenses affecting small businesses is workers' compensation audit, which covers expenses related to injuries to employees while on the work. In fact, 33 percent of small business owners identified workers' compensation as a critical problem in 2004, consistent with the National Federation of Independent Businesses (NFIB). Workers' compensation includes medical bills, also 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, counting on the state where coverage is provided. Average premiums still rise in most states just behind labor costs and insurance while coverage availability decreases. In most cases, the speed is charged against all payroll, including double time. This is a fast-growing expense across industries and one that can't be ignored.
So what can a corporation do to guard itself? Keep your claims to a minimum and be diligent about your policy's coverage.
Make Safety a Priority
If you've got not done so already, develop a written safety control program. Better workplace safety results in fewer claims and fewer claims directly affect your workers' compensation rate. A disciplinary program also should be incorporated into the security program, one that holds employees in charge of breaking the principles or rewards them for properly following safety procedures. A critical component of 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 associated with the work environment will convey the importance of safety at the corporate and therefore the expectations to comply.
Take Action When a Claim Occurs
When an employee experiences an injury on the work, complete an accident report with the maximum amount of detail as possible. Take photographs of the scene and ask any potential witnesses about what happened. The first report of injury should be sent within 24 hours to the insurance firm to make sure prompt handling and to assist fight fraudulent claims.
A drug test should be required of the employee. While a positive drug test won't allow you to deny a claim in most states, it'll 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 think fraud, immediately inform the insurance firm. Review your policy for the accuracy of the claim. Realize that sometimes it pays to research what you think maybe a fraudulent claim. For example, a worker who filed a claim for a nasty back was later photographed digging out a 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 make sure the claimant isn't 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 counting on its claim experience. The lower your claims, the lower your experience mod. Your rate is usually multiplied by your experience mod to reach the ultimate 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 within the insurance industry is above 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 usually 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 corporation becomes a part of a way larger purchasing entity and thereby receives the advantages 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 bulk of small businesses don't have a full-time human resources professional in staff, they often need advice on issues starting 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, knowledgeable employer organization (PEO) that gives health benefits, payroll administration, workers' compensation programs, and personnel records management to small businesses. Employ serves clients in more than 30 states nationwide.
