If you own a small business, there’s a good chance you need to carry workers’ compensation insurance to cover any work-related injuries or illnesses. Requirements for workers’ compensation coverage vary by state, with some states requiring businesses with as few as one or two employees to carry workers’ compensation insurance. Applicable companies that don’t comply will face penalties ranging from fines to criminal charges.
Of course, carrying workers’ compensation insurance has some financial challenges as well. Between premiums and other factors, managing workers’ compensation has a direct impact on your business’ bottom line. Let’s break down how workers’ compensation affects your business and what you can do to lower your financial burden.
How Much Does Workers Comp Cost?
Workplace accidents and illnesses are costly, but those costs can come in different forms. There are two main ways that affect how much workers’ compensation costs.
- Your workers’ compensation premiums
- Hidden costs
Workers’ compensation premiums
The most well-known cost related to workers’ compensation are workers’ comp insurance premiums. Your base workers’ compensation premiums are heavily dependent on your business. There are three main factors that impacts your premium.
- Class codes
- Experience modification rate
- Total payroll
Your classification code identifies the business type and estimated cost of your workers’ compensation rate. Meanwhile, your experience modification rate – also known as an ex mod or an EMR – is a number that represents how your business compares to other businesses with similar employee classifications. A mod below one means your business has a good history of claims and will lower your base rate. In general, more claims or more severe claims will raise your EMR.
These numbers are used to determine your base workers’ compensation rate. That rate is then applied against your payroll to determine how much you owe in workers’ compensation premiums.
The hidden costs of workers’ compensation
While it’s easy to see how much your workers’ comp premiums cost your business, it’s harder to identify other potential for losses. There are two potential issues that can end up costing your business in the long run.
- Lost work
- Employee costs
Depending on the nature of your business, your EMR can prevent you from making money. For example, a construction company with an EMR that’s too high may not be allowed to bid for certain jobs. As such, you may end up losing out on a great opportunity because your claims history scares off potential clients.
Another potential issue is that workplace accidents and illnesses directly impact your employees. If your employees feel unsafe or that their health and wellbeing isn’t a priority, they can become unhappy at work. That disenchantment can make them less productive or leave for different opportunities. Either situation can directly impact your bottom line.
How to Reduce Your Workers’ Comp Costs
There are two key strategies that you can use to not only lower your workers’ compensation premiums, but also mitigate the hidden costs you may face in the future.
- Have a safety culture
- Claims management
Have a safety culture
It’s no surprise that the best way to reduce workers’ compensation costs is to reduce or avoid injuries that lead to claims. The best way to reduce workers' compensation claims is to embrace a culture of workplace safety.
Proper education and training is an extremely effective way to reduce your rates. By limiting the number of claims – as well as the severity of injuries – you will lower your workers’ compensation costs over time. However, that process can only begin by committing to a couple of key practices.
- Risk assessments
- Safety training
Risk assessments
It’s hard to prevent issues if you don’t know what causes them. Risk assessments are designed to identify any hazards that put people in the workplace in potential danger. According to the American Society of Safety Professionals, this process involves an examination of several factors.
- Tangible and intangible sources of risk
- Threats and opportunities
- Causes and events
- Consequences and their impact on objectives
- Limitations of knowledge and reliability of information
- Vulnerabilities and capabilities
- Changes in external and internal context
- Indicators of emerging risks
- Time-related factors
- Biases, assumptions, and beliefs of those involved
Assessing these potential hazards allows your business to not only fix existing issues, but also take measures to limit future problems as well. Those changes will make your workplace a safer place and in the event that OSHA knocks on your door that you’re doing what you can to protect the people at your workplace.
Safety training
While assessing and addressing risks is one step toward developing a culture of safety, training is another. Proper training and safety measures can be the difference between some nasty bruises and fatality. That’s why it’s critical to train all your employees on the following.
- Safety and health policies, goals, and procedures
- Functions of the safety program
- Proper contacts for any questions or concerns about the program
- How to report hazards, injuries, illnesses, and close calls/near misses
- What to do in an emergency
Claims management
In an ideal world, no business would ever need to manage any claims. The reality of the situation is that there’s always a possibility that someone will have an accident. When that happens, the way you respond can help lower your workers’ compensation costs in the future.
While safety programs and other preventative measures can mitigate the number and severity of these accidents, it’s essential to properly manage any claims that do arise at your workplace. That’s why it’s important to focus on a few vital best practices.
- Timely reporting (not to exceed 24 hours from injury/accident)
- Post-accident investigations
- Return-to-work programs
Timely reporting
The quicker you report an accident, the better. Prompt claims management allows you to handle any incidents right away.
According to the National Council on Compensation Insurance, delayed injury reporting can increase your claim costs by up to 51 percent. There are a couple of reasons for this increase. For example, the injured individual may seek medical attention that goes toward the workers’ compensation claim. That treatment may have been deemed unnecessary if the claim had been reported and handled from the beginning. By reporting and managing the claim early, you can control any extra costs that will complicate the situation.
Post-accident investigation
Once an accident occurs, it’s critical to investigate the situation and take any appropriate action. This investigation should include the following objectives.
- Identify the root cause of the injury.
- Aid in mitigating all jobsite hazards.
- Assist clients in the development of an internal incident investigation process.
- Interview witnesses, photograph scenes, and gather vital information.
- Generate a written investigation report for documentation.
- Recommend corrective actions to prevent future accidents/injuries.
Taking these actions help your business in a couple of different ways. First, it helps you solve existing issues and limit accidents in the future. By changing your culture and having a solid foundation regarding safety, your business will be prepared if and when OSHA knocks on your door.
Return-to-work programs
The cost of accidents can extend far beyond OSHA intervention. Return to work programs allow you to make sure that any injured employees get the care they need and know that you have their best interests in mind.
The goal of a return-to-work program is to keep injured employees engaged and help them return to their roles as quickly as possible. It’s not uncommon for injured employees to feel detached from the company while on leave. With a return-to-work program, nurse case managers can keep employees involved and make them feel like they’re still a part of the business. With this level of care and attention, employees are less likely to sue, more likely to come back quicker, and can stay involved in the day-to-day safety culture.
Reduce Workplace Injuries Through Education, Training, and Claims Management
Prevention and claims management is your best tool when it comes to reducing your workers’ compensation costs. However, it’s hard to develop a culture of workplace safety without some assistance.
When you need to control your workers’ compensation costs, GMS can help. When you partner with GMS, you’re also getting a partner that can help you reduce claims and oversee the claims management process. Contact GMS today to talk to our team about how we can help you reduce your workers’ compensation costs.