.

If any of your workers are getting overtime, are those extra dollars included in your workers’ compensation premium calculations? If you answered ‘yes,’ you may be artificially inflating your payroll; i.e., paying higher premiums than is warranted.

Overtime, double time, and severance pay are typically allowed as deductions for workers’ compensation premium calculations. Yet companies large and small often overlook these three points. Knowing what deductions are allowed in your jurisdiction(s) and understanding how to apply them can save payers big dollars — immediately.

Accurate Payroll & Class Codes

Injury management is the area where most workers’ compensation cost-cutting strategies are focused, and with good reason. Reining in workers’ compensation costs through safety efforts, effective return-to-work programs, and best practices in medical management are proven to contain overall costs. But risk management is only part of the equation.

If you’re not reviewing your payroll (remuneration) and class codes for accuracy, you may be missing significant opportunities to quickly and easily reduce workers’ comp costs. Depending on the jurisdiction, there can also be an opportunity for deductions from uniform allowances, to officer excess and gratuities, to employer-provided perks. Ask your premium auditor or audit manager to reveal deductions you are allowed to take and still have an accurate assessment of your risk.

The Big 3

A majority of jurisdictions allow deductions for

• Overtime pay
• Double time pay
• Severance pay

Workers’ compensation premiums are designed to assess risk exposures appropriately. But paying someone double time to work on a Sunday, for example, doesn’t double his risk of injury; nor days paying out a golden parachute to a worker who has left the company. Taking allowable deductions can drastically lower your payroll — and your workers’ compensation premium.*

*Note: Compared to a guaranteed cost structure, employers in a high-deductible program may not be as greatly impacted by payroll deductions due to the significant latitude carriers possess with adjustments and credits/debits in the premium formula.

How to Do it

Getting the most out of allowable deductions is dependent on accurately presenting your payroll. Your workers’ compensation premium is based on your gross payroll (remuneration) including, for example, salaries, commissions, bonuses, vacation, holiday and sick pay.

Overtime and other payments can be excluded. But it’s important to exclude only premium portion greater than the standard rate:

Here’s how to figure your payroll with overtime deductions:

Say your company pays overtime — time-and-a-half — for someone who works on a Saturday and double time for working on Sunday. A worker who makes $10 per hour would get $15 for working on a Saturday and $20 for working on a Sunday. Let’s say he worked 8 hours both days.

To determine accurate payroll, you would deduct the $5-per-hour extra he made on Saturday and the $10-per-hour extra he made on Sunday. To calculate the exclusion:

Saturday                                  8 Hours x $5 =   $40

Sunday                                    8 Hours x $10 = $80

Total amount excluded from payroll = $120 ($40 for Saturday and $80 for Sunday)

You only need to pay premium on the worker’s regular $10-an-hour rate for the extra hours he worked, not the additional dollars.

Employers need to maintain payroll records that show the regular rate of pay, the overtime earnings, and a summary by type of operation performed, in order to get credit for the overtime excess.

It’s also important to understand that increases in wages are not eligible for exclusion. If you increase a worker’s base wage, that increased amount would need to be included in the payroll.

For severance pay, the calculation is easy. You can exclude these dollars paid to someone who no longer worked at the company to the extent it does not include pay for time worked or accrued vacation.

While these deductions may not seem significant, they can add up quickly and result in major savings.

Conclusion

You want to make sure your employees are properly covered for any work-related injuries they incur. However, you don’t want to pay any more workers’ compensation premium than necessary.  Knowing and applying allowed deductions can go a long way to dramatically reducing your workers’ compensation premiums while still paying the appropriate amount.

Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%.  He works as a consultant to large and mid-market clients, is a co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center .

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/

©2018 Amaxx LLC. All rights reserved under International Copyright Law.

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

A lot of employers strive to be a safer, more productive workplace for their employees. Every business would love to reduce costs and increase profit margins. The cost of workers’ compensation claims can have a significant impact on the company bottom line, particularly if you are self-insured or self-administered.

So how do you get started? Where do you start, or better yet when do you start? The answer is RIGHT NOW, and here is how:
 

1. Know Where Your Risk Lies

Observe your workplace. Go through department statistics and see how they all compare to each other regarding losses. Perhaps 75 percent of your injuries occur in the shipping department. Go down there and talk with the supervisor. Find out what their issues are and why they think injuries are happening. Then, work together to solve the problem.

Another helpful thing to look at is your loss run. Talk to your carrier or adjuster and see if they notice any trends in injuries, or which people are getting injured. Maybe the newer hires account for a lot of the injuries. This may show that a focus needs to be directed towards training and safety right from day one of their employment.

Look at your business. What do you do? What are the risks involved? You could have risk in several areas, stretching from workers comp to automotive issues with your fleet and the drivers, to liability risk from customers in your store. Break it all down, and start to track your statistics. Identify issues, and work on thinking of ways you can reduce your injuries or occurrences from happening in the first place.

2. Plan Your Attack

If you have identified a few areas in which you could improve by reducing injuries or claims reports, what do you do to fix it?

The answer lies in the resources you have all around you. The first step is to talk to your carrier. Chances are they have the loss-prevention specialists ready to help you work with what needs to be fixed, and how to fix it. Ergonomic professionals can be brought in to address your workstations, and suggest possible solutions to reduce exposure.

Utilize your medical clinic contacts to see if occupational physicians can watch employees doing their work to identify potential issues with certain movements or repetitive motion injuries. Or, maybe it’s time to consider having your own in-house occupational clinic for a proactive strategy. Utilize your local council, and have them come in to explain the risks and costs associated with potentially serious injuries, automotive accidents, failure to drug test your employees, etc. Any or all of these will help you get to your goal of reducing your exposure.

3. Implement Your Solution Plan

Once you have identified what needs to be fixed, and how it should be fixed, now it is time to fix it. Get rid of that old equipment and bring in new equipment that has better safety features. They cost less to maintain and repair, and they are quicker to operate. Most new machines use less energy than the old ones, reducing your utility bills and creating worker ease of operation. Get some padding on the floor for workers to stand on during work at their workstations (also known as “fatigue mats”). This reduces strain on their feet and legs, and reduces body fatigue, potentially making them more productive after long hours at the workplace.

Whatever the fix may be, get it done — out with the old, in with the new.

4. Measure Your Success Statistics

Once new equipment is installed, and in place, it is time to measure your reductions. Measure your numbers in a two, four, and six-month stretch. Did you see any drop in claim activity? Did claims increase, making your plan backfire? You have to see how you did, and most importantly, you have to give it time. Change is disruptive to employees, but they will get used to it. Give it time, and measure your numbers post-change against the ones you first noticed back when you were figuring out where your risk was coming from.

5. Get feedback from your workers

After all, you have done, you left out the most important thing: To talk to your staff of workers about the changes. How do they feel it impacted their workday? Were the changes helpful, or did they hurt production? How do they feel at the end of the day? Do they feel less sore or are the new workstations worse than the old ones?

Ask as many questions as you can. This makes your staff feel that their input is important, and taken into account. After all who better to talk to about the changes that were implemented than those who were directly affected day after day?

Summary

It is hard to break old habits and accept change. Even though it is hard work to find out what your risks are, how to attack them, implementing your changes, measuring your success, and getting worker feedback, in the end, it will be worth it. Lean into the task; don’t try to tackle it all at once.

Author Michael Stack, CEO Amaxx LLC. He is an expert in workers’ compensation cost containment systems and helps employers reduce their workers’ comp costs by 20% to 50%.  He works as a consultant to large and mid-market clients, is a co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center .

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/

©2018 Amaxx LLC. All rights reserved under International Copyright Law.

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

To calculate your workers compensation insurance premium, the insurance company takes into consideration three things – the type of business you are in, the total amount of your company’s payroll and your experience modifier.  The only one of the three things the employer has control over (without reducing payroll) is the experience modifier (also referred to as the experience modification factor).  The experience modifier factor is a calculated adjustment based your company’s loss experience.

Workers Comp Is A Long Tail Business

When the workers’ company insurance company establishes the premium for the employer’s next policy year, it will include in its calculations the results of previous loss experience with the employer.  Workers’ compensation is considered a long tail business, meaning that many workers’ compensation claims are open for an extended period of time.  Therefore, the insurer cannot just use the most recent claim history and claim reserves to calculate the loss experience.

The insurance company will look at the employer’s claim history for the three years prior to the current policy year.  For example, on 5-1-15 the insurer starts the premium calculations for the policy year of 7-1-15 through 6-30-16.  As some of the workers’ compensation claims are still open two, three of four years later, the insurer will analyze the claim cost of the three previous policy years not counting the current policy year.  The cost of workers’ compensation claims from 7-1-11 through 6-30-14 is used in calculating the experience modifier.

E-Mod Considers Both Frequency & Severity Of Claims

The experience modifier takes into consideration both the frequency and the severity of claims.  The insurance company places a greater weighting on the frequency of claims than they do on the severity of the claims.  Five workers’ compensation claims costing $5,000 each, or $25,000 total, have a greater impact on the calculation of the experience modifier than one $50,000 claim. The reason for this is frequency of claims is a reflection of the safety practices of the employer, and a high level (number) of claims reflects a lack of management control of safety.

The insurer will compare the results calculated for your company with other employers in the same type of business.  If you have an average safety program and an average number of claims – loss experience exactly in the middle of your industry, your experience modifier is 1.0 and your insurance premium will be the average premium for your industry.

If you have a good safety program and have had fewer than average claims during the three policy years preceding the current policy year, your experience modifier will be less than 1.0 and your insurance premium will be reduced accordingly.  For instance, your experience modifier is calculated to be 0.75.  With everything else be equal, your workers’ compensation premium will be 75% of the average premium.  The flip side of this is, if your loss experience is poorer than others within your industry, your insurance premium will be higher than average.  For example, your company’s experience modifier is 1.5; you will pay 50% more than the average employer in your industry.

A strong safety program where everyone in the company is safety conscious and participates fully in the safety program is the best way to lower your cost of workers’ compensation.  By lowering the frequency of claims you will have greatest impact on the experience modifier.

Steps The Employer Can Take

In addition to controlling the frequency of claims, there are several steps the employer can take to reduce the severity of the claims that do occur.  This includes:

• An established Return to Work program
• An ergonomics program
• A best practices claim handling guidelines
• Best Practices claim file audits
• A drug testing program including pre-employment, post accident and random.
• Medical management of claims including
  • Nurse triage
  • Early intervention
  • Medical case management
  • Utilization review
  • Medical fee schedule utilization
  • Medical provider networks

By understanding how the insurance company calculates your workers’ compensation premium, you can take the necessary steps to have a positive impact on your loss experience.  This will assist you in lowering your experience modification factor and lowering your work comp insurance premium.

Author Michael Stack, Principal, COMPClub, Amaxx LLC. He is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, and founder of COMPClub an interactive training program teaching workers’ comp cost containment best practices.  Through this platform he is in the trenches on a monthly basis with risk managers, brokers, consultants, attorney’s, and adjusters teaching timeless workers’ comp cost containment strategies, as well as working with members to develop new tactics and systems to address the issues facing organizations today. This unique position allows him to continuously be at the forefront of innovation and thought leadership in workers’ compensation cost containment. Contact: mstack@reduceyourworkerscomp.com.

©2015 Amaxx LLC. All rights reserved under International Copyright Law.

Employers/Carriers/TPAs/Brokers/Vendors looking for additional information FREE resources for Workers Comp cost containment best practices are invited to access Amaxx Workers’ Comp Cost Containment Essentials training series

Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.

It is inevitable. As soon as you congratulate yourself on reducing the frequency of workplace injuries, you get a notice from your insurance broker that your workers’ compensation premium is being increased 10%. Don’t just accept it as another rate increase, fight back.

The focus of our company is to assist you in controlling and reducing the cost of workers’ compensation. None of the following recommendations by themselves will give you control over the cost of workers’ compensation, but the recommendations together will give your control in the battle to minimize the cost of workers’ compensation

Safety Program:

The lowest cost workers’ compensation claim is the one that never occurs. The elimination of accidents reduces your cost of workers’ compensation. When the insurer’s underwriter is calculating your annual premium, the underwriter reviews the frequency of accidents and the severity of the accidents that do occur.

A strong safety program will incorporate safety training for all employees, a job hazard analysis to identify and eliminate causes of accidents, work-site evaluations and inspections to prevent accidents, and a safety specialist or safety committee to keep safe practices at the fore-front of your work process.

Return to Work Program:

A mandatory, company-wide return to work policy should be implemented if your company does not already have one in place. The return to work policy should be a part of every new employee’s orientation. It should be posted on the employee’s bulletin board and be discussed in staff meetings. All employees should know a job will be available to them as soon as they medically approved to work light duty.

The company’s workers’ compensation coordinator should place a call to the medical provider the day of the initial medical treatment to learn the work restrictions provided by the doctor. The workers’ compensation coordinator should advise the doctor of the employer’s willingness to modify the employee’s job duties to comply with the work restrictions.

Wellness Program:

An integrated health and wellness program will reduce the cost of workers’ compensation by reducing the impact of comorbidities on the injured employee’s recovery. By reducing obesity, diabetes, hypertension and physical deconditioning, an injured employee recovers faster from an injury, reducing both the amount paid for medical care and the time lost from work.

Medical Cost Control Program:

Historically, medical expenses make up over half of the total cost of work comp. If your state allows you to designate a specific medical provider or allows you to designate a list of medical providers from which the injured employee must select, be absolutely sure to do so. By directing the injured employee to a doctor with vocational medicine experience who understands the need to get the employee back to work as soon as feasible, you will eliminate unnecessary medical treatment and unnecessary delay in the employee returning to work. If your state does not allow you to designate the medical provider(s), you should post on your employee’s bulletin board a list of recommended medical providers.

From the moment of injury until the injured employee has reached maximum medical improvement, the course of the medical care should be managed. Initially, a triage nurse should arrange the immediate medical care and any subsequent medical appointments. If the injury is severe, and the employee is going to be off work, a nurse case manager should take over the coordination and arrangement of medical care.

Alternatives to Insurance:

Larger employers should discuss alternatives with their brokers. Instead of a standard workers’ compensation insurer, large employers should explore the possibilities of setting up their own pure captive insurance company, renting a captive, joining a group captive, joining a pool, joining a risk retention group, joining a purchase group (Texas only) or starting a large deductible program. Each of these alternatives has pluses and minuses, so please research each carefully.

For more information on how you can fight back against another rate increase, please give us a call. We will be glad to discuss your specific needs and assist you.

Author Michael B. Stack, CPA, Director of Operations, Amaxx Risk Solutions, Inc. is an expert in employer communication systems and part of the Amaxx team helping companies reduce their workers compensation costs by 20% to 50%. He is a writer, speaker, and website publisher. www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.

©2013 Amaxx Risk Solutions, Inc. All rights reserved under International Copyright Law.