How To Save on Workers' Comp Costs

Like all businesses, small business owners must protect their employees. This includes having workers' compensation insurance coverage. All states except Texas require every business with even one employee to have workers' compensation insurance.

Workers' comp can be expensive. But it protects employers' liability for on-the-job injuries. There are ways to reduce the cost of your workers' comp insurance policy while protecting your employees from injuries on the job.

For more information, visit FindLaw's Workers' Compensation page.

Keep Your Policy Up To Date

The best way to lower your premiums is to keep your workers' compensation policy data current. Your insurance carrier calculates premiums based on the number of workers insured and other factors called “ratings." Your “ratings" must be accurate for an accurate premium.

• Your classification refers to your industry or occupation. Most states have classification lists, although insurers sometimes create their own classifications and have them approved by state insurance commissions. Be sure your insurance company has given you the correct classification.

• The insurer or state's insurance board assigns each classification a rate. The rate refers to the insurer's ability to cover losses in a particular industry. For an extreme example, an explosives manufacturer would have a different rate than a secretarial firm.

• Insurance companies add modifications to set the final premium cost. The premium modification is based on the number of employees. The experience modification is based on similar losses from similarly-sized companies in the same classification. The figures must be accurate so your workers' comp premium estimate will be accurate.

In the rush of business, it's easy to forget to update your policies. But you could find yourself paying for more employees than you have. Insurers base premiums based on annual payroll, so keep track of who you hire and fire each year.

Make Changes in the Workplace

The best way to reduce your workers' comp costs is to reduce the number of workers' comp claims you file. This often means getting the support of your workers through safety training.

State laws permit employers to switch workers' comp carriers as their business needs change. If you need to switch from the state fund to a private insurer or vice versa, you can do so. Industry experts recommend shopping for a new policy several months before your old policy expires.

Below, you'll find a few other ways to reduce workers' comp costs in your business:

• Most states allow companies to request a pay-as-you-go workers' comp policy. This type of policy lets employers pay their premiums based on monthly rather than annual payroll. This system spreads the cost out over the year and keeps costs equal to your actual payroll.

• Consider group self-insurance. Large corporations can provide their own workers' comp coverage. But most small businesses don't have cash reserves to self-insure. Some states allow several small companies in similar industries to pool resources and create their own workers' compensation insurance coverage.

• Develop a workplace safety program. Many insurance companies will reduce costs if you have certain types of safety programs, especially if they lead to a drop in work-related injuries. Ask your insurer for help in designing this type of safety plan.

When injured workers return to work, follow their work restrictions. Workers' compensation only pays for medical treatment and partial wages. The goal is to return injured employees to work as soon as possible. You can help by cooperating with all medical work restrictions, assigning them to light work, if required, and ensuring they get their follow-up care when needed. This reduces the chance of a second injury and more compensation claims.

Be Proactive

A good way to avoid high workers' compensation insurance costs is to keep your workers safe and healthy. If you can offer health insurance, you should do so. The Affordable Care Act (ACA) requires employers with more than 50 employees to offer coverage to full-time employees. If you can't afford medical care, think outside the box to avoid workplace injuries and illnesses.

The Family and Medical Leave Act (FMLA) applies to businesses with more than 50 employees. It gives qualified workers up to 12 weeks of unpaid leave each year to recover from serious illness or injury or other urgent issues as specified in the ACT. Smaller businesses can use FMLA if they choose.

The most common occupational diseases today are back and neck injuries and stress. Small businesses can avert many of these issues with occasional time off, rest days, and even new furniture. These investments are often cheaper than long-term medical expenses and workers' comp benefits.

Consider alternative employment systems like remote, hybrid, and flextime. Workers' compensation coverage follows your employees home, but the ability to care for sick children (and not bring germs to the workplace) is worth the flexibility.

Get Legal Advice

Workers' compensation insurance for small businesses is a complex issue. Although it can seem unnecessary for a three-person office to carry extra coverage, not having enough insurance can cost owners more in fines and penalties. Discuss your options with an insurance agent and an employment law attorney in your state before making any decisions.