What You Don’t Know About Workers’ Compensation Can Hurt You

Too often, business owners view workers’ compensation insurance only through their “expense lens,” rather than understanding how essential it is to their risk management program.

Just how important is it? It’s the sole remedy for risks associated with workplace injuries. Regardless of size, a business can be held liable for employee injuries sustained on the job. In some cases, the cost of compensating the employee can put the company’s future at risk.

Not all states have the same requirements for workers’ compensation insurance, so it’s always smart to get professional advice. Requirements can vary widely, ranging from states such as Texas that do not require it at all and states such as Florida that require all companies with a certain number of employees to have coverage, to states that require all businesses to provide it.

We often encounter misconceptions business owners and managers have about workers’ compensation coverage – and these can have a costly impact on their companies:

• Not covering every employee for every job they perform: In many companies, workers may have multiple roles, such as construction workers who may do both framing and roofing. Coverage should be specified for each of these class codes, along with the percentage of time typically spent on each.
  
  
• Not insuring the owner: If the business had to run without the owner after an injury, it could incur substantial losses.
  
  
• Not understanding the basis for their rates: Workers’ compensation rates are based on loss history and regulated by each state. They are raised or lowered based on the company’s safety performance over a three-year period.
  
  
• Not realizing they can save money on premiums: A combination of safety programs and wise selection of carriers can make a big difference in the cost, as carriers may charge significantly different premiums. Regular safety training, creation of a safe work environment and enforcement of safety rules are among the best ways to reduce the cost of premiums. In addition, it’s always a good idea to shop for the best coverage and cost.

Finding and working with a PEO that allows the business to take advantage of larger group rates is another good move. Some PEOs are even willing to offer discounts to start-up businesses, even though these businesses have no loss history. And if the PEO owns its own workers’ compensation insurance carrier, there may be even greater pricing flexibility and more savings on premiums.