According to Liberty Mutual’s Workplace Safety Index, U.S. employers pay over $1 billion weekly on serious, non-fatal workplace accidents.
If you’re a small business owner in a high-risk industry, like construction, workers’ compensation claims can leave a dent in your finances. Luckily, you can take steps to prevent accidents on your worksite and control the cost of workers’ compensation.
Below, we provide five proven strategies to reduce your workers’ compensation costs.
What Factors Impact the Cost of Workers’ Compensation?
The overall cost of your workers’ comp insurance costs can vary depending on:
- The size of your payroll
- The state your business operates in
- Your history of workers’ compensation claims
- Your work industry
- Your workers’ daily tasks
Insurance companies also take into account your experience modification (X-Mod) factor if your business qualifies for one.
Your X-Mod is a number between 0 and 1 that gets multiplied to your premiums. It’s based on your loss history compared to others in your industry. If you’ve had fewer than average losses, your experience modifier will be less than 1 and you’ll get a discount on your insurance premiums.
What Expenses Are Covered Under a Workers’ Compensation Program?
Most businesses are required to provide workers’ compensation. Benefits include coverage for:
- Medical and ongoing care expenses
- Funeral costs
- Legal services
- Missed wages
- Compensation for fatalities
- Monetary benefits for surviving spouse and children
These benefits can only be claimed for on-the-job accidents.
Without workers’ comp coverage, you’re at risk of being sued by your employees for these expenses. And that’s in addition to potentially paying hefty fines to your state for non-compliance.
What Issues Are Not Covered by Workers’ Compensation?
While a workers’ comp plan can offer significant financial protection, indirect costs associated with job injuries aren’t usually covered. These include:
- Time required for accident investigation and injury reports
- Safety training for new hires
- Decrease in productivity and morale
- Repairs to property or equipment damaged
Workers’ compensation benefits may not kick in if your employee was injured while intoxicated or by intentional self-harm. Your policy may also not cover accidents arising from floods, hurricanes, or other “Acts of God.”
5 Strategies to Reduce Workers’ Compensation Costs
Workplace injuries affect the culture and reputation of a company and can also do significant damage to a business's bottom line. As a small business owner, controlling workers’ compensation costs is essential. Here are some strategies.
#1 Educate Employees on Workplace Safety
The most effective way to reduce workers’ comp costs is by creating a culture of safety at your company and making sure all your employees know about it. Here are some tips on how to do that:
- Make health and safety a priority: Tell your team it’s your no. 1 priority to make sure they’re safe. OSHA has a lot of great tools, including one that tells you what standards apply to you and tips on how to meet them.
- Get workers involved in shaping your workplace safety program: They can help create policies, set goals, develop incident investigation procedures, and decide how to measure progress. For a deep dive on how to create a safety program, read our article on just that.
- Train your team: Train your workers so that they know what kind of dangers to look for in the work environment, recognize their role in preventing harm, and understand their responsibilities in your safety program. Make this safety training part of your onboarding process for new employees.
- Encourage your workers to report hazards…: Implement ways people in the company can easily (and maybe even anonymously) report workplace hazards or behaviors that put others at risk. You can also do periodic inspections to make sure people are following the rules.
- …and then get rid of those hazards: Work with your employees to eliminate, prevent, and control the workplace hazards they notice.
- Reassess your program: Evaluate the program periodically and improve on issues you see.
- Ensure everyone is on the same page: Make sure your general contractors, subcontractors, and staffing agencies know about your safety standards, and are just as committed to meeting them.
- Show instead of tell: Both you and your managers should lead by example. Follow the safety protocols you’ve set up for your workers.
There are government incentives to develop a workplace safety program for your company. For example, the California Department of Industrial Relations rewards employers who put health and safety programs in place by exempting them from routine inspections.
#2 Choose Quality Medical Care
A key to reducing workers’ comp costs is to provide your injured workers with medical attention as soon as possible.
Calling the right medical services at the time of injury reduces the risk of suffering a long-term disability. In this way, you can keep medical expenses down and lower your chances of being hit with a costly lawsuit.
Some workers’ comp insurances also use an Outcomes Based Network (OBN) in place of or in addition to the traditional preferred provider list.
These doctors are chosen for their quality patient care and better overall results, rather than by whoever is closest. Working with OBN physicians can provide better health outcomes for injured employees and get them back to work faster.
#3 Keep Clear and Accurate Reports
When an injury occurs, promptly provide any necessary documents to your insurance agent to process claims quickly. Keep a record of all communication with the claims adjuster and medical provider so no charges are missed or duplicated.
You should also ensure that employees are classified correctly on payroll, as misclassification can lead to unnecessarily high pricing. For example, workers’ compensation premiums for an office worker are generally significantly lower than that of an equipment operator.
Never deliberately misclassify employees. This may lower your workers’ compensation rate in the short term, but you could be subject to penalty fees, lawsuits, or even prosecution after an audit.
#4 Develop a Return-to-Work Program
You can also cut workers’ compensation costs by implementing a return-to-work system that lowers the number of workdays lost to accidents or illnesses.
A successful return-to-work program should be designed to get injured employees back to work as safely and as quickly as possible. Possibilities include putting returning employees on light duty or part-time shifts until they recover fully.
Return to work programs lower workers’ comp costs by:
- Reducing the need to hire and train replacement employees.
- Lowering overtime pay for current employees who may have taken on more work after the accident.
- Preventing a drop in morale (and productivity) by giving hurt or sick employees peace of mind they’ll be able to ease back into their position.
#5 Find a Better Policy
If you’ve done your due diligence and find that your workers’ comp costs are still too high, it may be time to look for new workers’ compensation insurance. We recommend reviewing your policy selection every few years or when an unexpected rate increase arises.
To find the most efficient and cost-effective workers’ compensation policy for your team, talk to your insurance broker. Ask them to look at:
- Adjusting your deductibles
- Available premium credits
- Recalculating premium rates based on your losses
Take Control of Workers’ Comp
Workplace accidents can be overwhelming, but they don’t have to result in devastating financial setbacks. You can protect your crew and your business from the indirect and direct costs of work-related injuries. With an informative safety program, quality medical care, and an efficient return-to-work system, you can control and reduce the cost of workers’ compensation.