Most contractors fall victim to the concept that they have got no power over their workers’ compensation rates. Although it’s accurate that workers compensation coverage is typically a mandated coverage in most jurisdictions, that doesn’t mean an employer who demonstrates proper control and obtains a practical insight into the premium producing elements of workers compensation insurance has no control over the price. In fact, the opposite is likely to be true. With expert guidance and an eagerness to implement a few fundamental management techniques, any contractor can assume control of his workers’ compensation program and start to see the rewards of a lower overall cost.
Payroll Reporting Errors
There are two typical workers’ comp payroll pitfalls an employer might make. Both of them have a corresponding cost that affects the contractor in different ways. The first one is underestimating your projected annual payroll. Underestimating your payroll will likely result in a large additional premium due after your audit has been completed. The second issue is overestimating payroll.
Overestimating payroll will result in the contractor having overpaid his workers’ comp premium. Even though the contractor may recover the overpayment after the audit is completed, he has, in reality, enabled the insurance company to hold his premium during the policy period. This is certainly not a very effective use of funds.
Business Operation Changes
Any time there is a change to an employer’s business operation, it may have an effect on the classification of their workers’ comp program. Case in point, there are two prevalent workers comp payroll mistakes an employer may make. Both have a corresponding cost that impacts the employer in distinctive ways. A carpentry contractor, who focuses on residential remodel work but then decides to start performing roofing work, there would definitely be a substantial increase in his workers’ comp premium because of the higher rate class of roofing now being applied to his workers’ comp policy.
A contractor who decides to add an additional work process, such as a metal goods manufacturer adding a woodworking process, would also sustain a change to his workers’ comp rates merely because he has changed what his company does. So then, always keep in mind, if you alter your business operations, you must modify your workers’ compensation policy.
Subcontractors and their Certificates of Insurance
Quite frankly, subcontractors and workers comp can be an expensive combination. In a nutshell, uninsured subcontractors are treated just like an employee from a workers’ comp point of view. If your business uses subcontractors put into practice these fundamental control practices to avoid being charged more on your workers’ comp for the work subs perform.
- Make certain you get valid certificates of insurance from every subcontractor
- Make sure that the certificates indicate coverage was in place during the time the sub worked for you
- Make sure that you have the certificates BEFORE the sub starts to work for you
- Always ask for new certificates that indicate renewal of coverage
Workers’ Compensation Claims
If your contracting business qualifies for experience rating, every claim dollar paid by the insurer will inevitably affect your workers’ compensation rates. The most direct link between claims and increased cost is because of the experience modification factor. Essentially your company claims and payroll experience is contrasted with comparable businesses and a factor is delegated to your business. Your workers’ comp premium is then multiplied by the experience modification factor to formulate your actual premium.
Your responsibility as a contractor should be to:
- Promptly report claims to your insurer
- Regularly monitor all open claims
- Set goals for closing all claims as soon as possible
- Provide help and resources to facilitate getting injured employees back to work
Finally, take advantage of your experienced insurance broker and feel free to ask questions that will help you better understand your workers’ compensation coverage and pricing.