Worker’s Compensation: Big Expense for Small Business

Workers’ Compensation insurance is a big expense for small business. Read on if you have a business, or forward it to your business-owning friends.

Workers’ Comp is required for virtually all businesses with employees in all 50 states. It provides for employees who are injured on the job and can’t work. In California, businesses buy Workers’ Comp in the private insurance market unless they are turned down and forced into the higher cost “State Fund”. Benefits are generally standardized so as a business owner you want a solid carrier, competitive rates and good agent advice.

Your Workers’ Comp premium is determined by three factors: the industry risk rating (sometimes known as NCCI rating), the size of your payroll and your experience modifier (sometimes known as X-Mod):

NCCI Rating x Payroll x X-Mod = Premium

Your NCCI rating is a blend of the risk of injury of all your employees. For this to be accurate, the classification of your employees needs to be accurate. For example, if you have a secretary (low injury risk) incorrectly classified as a carpenter (high injury risk), it will cost you a lot more.

Your payroll also needs to be accurate. You do not need to include officers, owners, partners, relatives of owners, independent contractors or insured subcontractors. But you do need to include an up-to-date employee payroll that includes hourly wages, salaries, bonuses, etc.

Your X-Mod is based on your loss history. You can improve your loss history by establishing a safety culture, hiring qualified employees and not letting injured employees stay home longer than medically necessary.

Accurate employee classification, accurate payroll reporting and a commitment to loss reduction are what you need to do to minimize your Workers’ Comp rates. Beyond that, don’t get cute. The WCIRB California employs over 200 people whose primary objective is to ferret out inaccurate employer information via audit. They are on the lookout for misclassified employees, understated payrolls, employees misclassified as contractors, gaps in WC coverage history and incomplete/late audit responses.

If inaccuracies are found, they can and will increase your X-Mod which then forces you to the higher cost State Fund. You can also be fined. They do not fool around.

Failing to provide Workers Comp altogether is a criminal offense in California punishable by jail time, big fines and a stop operating order. And if an employee is hurt when you don’t have insurance, you are additionally liable for all bills related to the injury, a new series of big fines and are subject to civil action from the employee.

Workers Comp is a necessary cost of doing business that can be managed by being accurate, being safe and getting good agent advice. At Desert Insurance Solutions we see a lot of plans that were originally set up properly by other agents but then become out of date as the business changed and grew. We have a Workers Comp expert on staff and have saved a lot of premium dollars for a number of clients…clients who are willing to share their experience with you upon request. So call me if you or your business-owning friends need a “desert insurance solution” to their Worker Comp issues.

This site is informational and not a substitute for professional advice. Insurance coverage is subject to the language of the policies as issued.