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December 26, 2024
Workers comp insurance rates are an expense employers must shoulder to protect employees against financial losses due to injury. Rising workers' comp rates continue to burden growing businesses that want to invest in the latest technology and talented people. However, redistributing revenue to increase the workforce sometimes involves a delicate balancing act.
Adding hard-working community members isn’t just a matter of carving out the funds to provide them with a good salary. Onboarding the best and brightest available professionals means dealing with workers comp insurance rates that could go up if someone gets hurt or falls ill. As it stands, the average workers’ comp premium runs approximately $1 for every $100 of payroll, depending on location and a variety of factors. According to the National Safety Council, accident claims during 2021 and 2022 cost insurers $44,179, driving up premium rates for employers. For companies to tamp down this expense, it’s essential to understand the coverage, recognize the workers' comp cost drivers and not allow them to hamstring your hiring goals.
What is workers compensation insurance?
Workers compensation insurance is a coverage businesses need to carry to provide financial support in the event an employee sustains an on-the-job illness or injury that prevents them from earning a living. It typically covers medical expenses as well as lost wages. In some cases, workers comp provides death benefits to the families of people who lost their lives in the workplace.
Although workers comp coverage is a mandatory expense for organizations with a specific number of staff members, it offsets the ability of injured parties to file civil lawsuits against employers, with some exceptions. From a public policy perspective, it’s a trade-off in which employers and employees gain a benefit that allows the economy to prosper.
Top Workers' compensation cost drivers
In order to avoid paying for an unnecessarily high workers comp insurance cost each month and year, it’s essential to identify the reasons premiums spike. Understanding how insurance rates tick up is the first step in minimizing this mandatory business expense. These rank among the common workers’ comp drivers.
1. Employee Classifications
Your insurance carrier insists on knowing precise job descriptions. The reason they require this information is to classify employees by position and the risk factors associated with duties. For instance, a staff member who performs clerical work in a comfortable and safe office space may be classified as low risk. The same cannot be said of a utility worker who climbs poles and repairs high-voltage power lines.
For employers to minimize workers comp insurance rates, it’s important to classify each worker with precision. The Department of Labor publishes codes that correlate to each occupation. Using the wrong code could end up costing your organization money due to misclassification.
2. History or Accident Claims
Your workers' comp premium is likely to increase following a workplace injury, illness or fatality. This insurance carrier practice of raising rates is not intended to be punitive in any fashion. Corporations basically hedge their bets and outfits that file claims are typically considered higher risk than those who do not.
One pragmatic way to think about workers comp increases is through the car insurance lens. We are all well aware that speeding tickets and collisions result in higher monthly premiums. Why? Because poor drivers, like unsafe work environments, are riskier.
Some of the best practices employers can use to prevent higher insurance rates include improved safety education and adhering to Occupational Health and Safety Administration (OSHA) regulations. If you want to lower your rates going forward, consider adding safety training programs. Don’t hesitate to let your insurance carrier know about the proactive steps you are taking to prevent accidents and avoidable claims.
3. Business Location Impacts Cost of Workers Comp
Regulations surrounding workers’ compensation are not the same in every state. Those differences can have a significant impact on the annual rates your operation pays. For example, California, New Jersey, and Hawaii reportedly have the highest premiums, all of which exceed $2.25 per $100 of payroll. By contrast, Arkansas, North Dakota, and West Virginia enjoy among the lowest rates, all of which are $0.65 or lower per $100 of payroll. When you have dozens or hundreds of employees, the cost difference cuts deep into a business’s budget.
There’s little an organization can do in terms of location, except relocate. There are instances when companies deploy temporary teams to other states to deal with catastrophic events and for other reasons. It’s prudent to work with a professional employer organization (PEO) that understands the nuances of out-of-state employment, wages, and workers’ compensation. The right firm knows how to take advantage of regulatory nuances and save your operation money.
4. Claims Management Drives Your Workers' Comp Premium
Detailed reporting and accurate claims management have proven to be one of the most effective ways to minimize the cost of workers comp. When incidents occur in the workplace, companies can already anticipate at least a minor rate increase. How the claim is handled speaks volumes about an operation’s attention to safety regulations and transparency. Consider the real-world anecdote of a child who takes a cookie from a jar against his parents’ wishes. The youngster who takes responsibility usually earns more leniency than one who hides the truth. Taking ownership and responsibility are values adopted by professionals in wide-reaching industries. Having an experienced and proactive PEO handle reporting can result in lower claims and rates.
SPLI PROVIDES COST-EFFECTIVE WORKERS COMP CLAIMS MANAGEMENT AND EASY REPORTING
At SPLI, we work diligently with small, mid-sized, and large companies to provide professional workers’ comp management that includes handling claims, reporting, and risk. As an industry-leading PEO, our experts know how to navigate payroll and workers’ comp across state lines to ensure your growing organization doesn’t pay more than its fair share. Feel free to peruse our blog page to learn valuable information for your business needs. Contact SPLI today to get covered with confidence.
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