Watch Out for Workers Comp Overpayments

Calculating wages in a workers comp claim can be confusing, especially within the jurisdiction of which the claim resides. There are ways to calculate regular wage loss, partial wages, wage reductions, pension coordination, social security reductions, old age reductions, Friend of the Court Liens, and others.

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“8 ‘Think Outside the Box’ Tactics to Settle Workers’ Comp Claims”

Typically the adjuster’s supervisor will be involved when reviewing the file to make sure that all wage calculations are correct. But even then there can be issues with unusual cases. Below are examples of wage reductions and coordination which vary by state. Be sure to check with legal counsel and/or with the Comp Bureau to make sure your calculations and reductions are correct to avoid overpayment. [WCx]

1. Partial wage loss calculations

When a worker returns to light duty work, sometimes the employer can offer the job at a reduced wage. (See our Free Transitional Duty Calculator for assistance)This makes sense, because why would an employer pay a person usually making $80,000 a year the same wage when the job offered is now answering the phone? Wage reductions may take place in order to try to motivate the employee to return to regular duty and to avoid a large wage loss differential.

But every state has their own calculation process when taking a person’s regular workers comp rate, and calculating light duty wages. Most times it is not as simple as just taking what would have been earned from being totally off work, and subtracting the wages made while working light duty with a different wage. Be sure to know what the calculation process is, and how it would apply to each claim in order to avoid an overpayment. A certain way to anger a claimant is to say there has been an overpayment during the last month, and you are chopping the wage by half in order to recoup the overpayment. Most jurisdictions have a spreadsheet or calculation cheat sheet showing the process, and how it is applied to the claim. Make sure the adjusters know when the employer pays a reduced wage for certain light duty jobs. It is better to be safe than sorry! Consult our WC state by state guide for more information on your jurisdiction.

2. Pension coordination

Certain jurisdictions allow wage coordination when the employee is drawing a pension at or around age 65. This places the pension as the dominant wage, and the work pay as a supplemental wage, or vice versa. It is easy to overlook this, resulting in a large overpayment. Jurisdiction lays these rules out in the workers comp act, and it should be understood by all of the adjusters on the team. This scenario is not that common, so it can be easy to miss this simple wage calculation. If this pension coordination is present, be sure to remind the adjuster this person is drawing a pension just in case coordination does apply. In some states this does not matter as workers comp will always be viewed as being primary. The adjuster will always prefer to have too much information versus not enough.

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3. Social Security Retirement (SSR) wage coordination

Similar to the pension, the same can apply for employees receiving SSR. If this is the case, make certain the worker provides a letter from the SSR agency to be sure that the correct amount is being coordinated. Just taking an employee’s word is not enough, as errors can be made. It may not be a large percentage of the workplace, it depends on the types of clients of the TPA or carrier.

4. Old-Age wage reductions

Certain states also allow for an “old-age” wage reduction, meaning that if a worker is age 65 or older, you can take a flat rate percentage off the regular comp rate. Of course this does not apply to every state, so ascertain if this rule applies if your claimant is age 65 or older. It is thought that this percentage reduction again offsets a pension or SSR wage, but this may not always be the case. Sometimes you have to calculate both, and take the larger of the two reductions. Check with the local counsel on what may apply, if at all.

5. Friend of the Court Liens or other Liens

Chances are the claimant may not be forthcoming with telling you there is a lien or wage garnishment being applied to the normal wages. Typically if this is the case, and wages are being taken out of the normal wage check, they will have to be taken out of the comp checks as well. The exact percentage and how it calculates out will vary by state, and a large overpayment could result in a short period of time. Employers must tell the adjusters if this is applicable for this claimant, especially if the case is in litigation. If a settlement is agreed with a claimant that contains a lien, it is possible the lien holder can take all or most of the settlement intended for the claimant. It this is the case it may deter the claimant from settling in the first place. [WCx]

Summary

Overpayments are never easy or fun to deal with for any of the parties involved. But this can be prevented with opening the lines of communication between employer, carrier, and claimant. A lot of adjusters will ask these questions as part of a normal investigation, and if these question are not asked it is be a good idea to integrate them into everyday investigations. This will save everyone a headache down the road.

Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact: RShafer@ReduceYourWorkersComp.com.

Editor Michael B. Stack, CPA, Director of Operations at Amaxx Risk Solutions, Inc. is an expert in employer communication systems and a part of the Amaxx team helping companies successfully reduce Workers Compensation Costs by 20% – 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com Contact:mstack@reduceyourworkerscomp.com

WORKERS COMP MANAGEMENT MANUAL: www.WCManual.com

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MODIFIED DUTY CALCULATOR: www.LowerWC.com/transitional-duty-cost-calculator.php

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers comp issues.

FREE DOWNLOAD: “8 ‘Think Outside the Box’ Tactics to Settle Workers’ Comp Claims”