July 24, 2015 | Industry Insights
Inside Your Workers’ Compensation Premium
Workers’ Compensation insurance for most businesses, including logistics service providers and transportation intermediaries, represents a significant operational expense with companies looking for ways to drive down costs. Some of the measures that help mitigate exposures of on-the-job-accidents and injuries and reduce cost drivers include safety programs and training, return-to-work programs, claims analysis, and a review of claims management and reporting procedures. In addition, a review of your Workers’ Compensation policies and related documents, including your experience modification worksheet, payroll audits, employee classifications, and loss-sensitive rating adjustments, is critical in determining where improvements can be made and where possible problems or miscalculations may exit.
The premium for a Workers’ Compensation policy involves several components including whether an industry has low or high injury frequencies, how a specific firm’s losses compares to their industry standard (represented by your experience modification), how employees are classified, and a company’s payroll. Each should be evaluated carefully. For example, an experience modification factor of 1.0 is considered to be the industry average. A mod factor more than 1.0 means that your firm’s losses are worse than expected and a surcharge will be added to the premium. A mod factor less than 1.0 means losses are better than expected, resulting in a premium discount. Monitoring your firm’s mod factor can play an integral part in reducing Workers’ Compensation premium costs, specifically for companies that have more than $10,000 in premium in a single state. It also provides a great way for businesses to benchmark how their loss prevention and control practices stack up to other companies in the same industry.
How you calculate your payroll is also important. Payroll for Workers’ Compensation includes wages in addition to things like vacation pay, holiday pay, bonuses (including stock), sick pay, auto allowances and commissions, and more. An audit is done at the end of the policy period to reconcile the estimated against the actual payroll amount. It’s important to be diligent when calculating payroll and understanding what is included when determining this amount.
Employee job classifications should be examined carefully. You want to make sure each of your employees are classified properly. For example, a clerical employee would have a lower risk of injury that a worker loading cargo and should be classified appropriately.
In addition, if you have subcontractors or independents working for you, be sure they aren’t being misclassified. This is particularly important in the wake of recent guidance issued by the Department of Labor (DOL) in classifying employees vs. independent contractors. The DOL issued a multi-factor “economic realities” test to use as classification assessment. These factors typically include: the extent to which the work performed is an integral part of the employer’s business; the worker’s opportunity for profit or loss depending on his or her managerial skill; the extent of the relative investments of the employer and the worker; whether the work performed requires special skill and initiative; the permanency of the relationship; and the degree of control exercised or retained by the employer. It’s important to take these guidelines into consideration, as not only can your Workers’ Compensation premium be impacted but you could also end up facing wage-and-hour violations and other non-compliance issues under the Fair Labor Standards Act (FLSA).
Roanoke Trade provides a full package of insurance coverages to the transportation and logistics industry, including Workers’ Compensation. We will review your current policies and related documentation, safety programs, claims management and other factors that affect your premium to help reduce your exposures and get costs under control. Ultimately, this also makes for a more productive and healthier staff. Please contact our specialists at 1-800-ROANOKE (800-762-6653).