Control Workers’ Compensation Costs | DCR Workforce Blog

Control Workers’ Compensation Costs

worker compensationVirtually every company in the U.S. with employees is required to have a workers compensation insurance policy intended to insure workers against injuries on the job. Workers’ compensation programs are intended to compensate workers when injured at the workplace without having to undergo lengthy and expense litigation, but unfortunately these programs too often fall victim to the law of unintended consequences.

Many employers feel that the law complicates their lives. The costs are seen as burdensome and a drain on their profits. Moreover, litigation has only changed course – not been stopped. For staffing agencies, workers compensation is even more complex, requiring extensive and accurate record keeping. To control the costs of workers compensation, and minimize the associated administrative burden, start by understanding how workers compensation rates are established. There are three factors that drive worker’s compensation costs:

  • The base rate, which is unique to each state and industry classification, is established using the National Council on Classification (NCCI) classification codes.
  • The base rate is charged for every $100 of payroll to create the “base premium”.
  • The “MOD rate” factors in the company’s incident rate over the past three years, as compared to the standard incident rate in the same industry classification and state.  MOD rates are re-evaluated annually.

While the base rate is fixed, companies can take steps to control the base premium and the MOD rate.

  • Every company should conduct an audit of its worker’s compensation policy to determine its accuracy. Verify that there are no charges for uninsured subcontractors, that changes in workforce size are accurately represented, and that rates are based on proper classification of all worker types.
  • Require certificates of insurance from all independent contractors and subcontractors.
  • Many states offer premium credits for employers that participate in certified safety, substance abuse awareness/prevention programs and managed healthcare programs. Consider implementing these programs.
  • Explore free, confidential consultations offered by U.S. Occupational Safety & Health Administration (OSHA) and state agencies. Through these programs, employers can learn about potential workplace hazards, improve their safety and health management systems, and qualify for exemptions from inspections.
  • Require safety training, on the job, for all workers. Impart adequate training, using a language the worker understands well.
  • Build a culture of safety awareness, and post constant reminders around the office which alert the workers to the need for precautions at every step.
  • Inspect work facilities and eliminate hazards. Make the supervisor accountable and responsible for implementing the safety rules of the workplace and ensuring that no one is injured.
  • Focus on helping the worker to return to work after an injury by offering or negotiating accommodations which may be required until the worker makes a full recovery.
  • Investigate an incident for all possible causes, and address the underlying causes..
  • Incentivize workers to report all issues, not only as their protected right but also as a duty. Workers may also be invited to investigate small incidents, or conduct safety audits so that little problems are fixed before they become major incidents.

Workers’ compensation guidelines for temporary staffing agencies are the same as if the staff were permanent, except when it comes to paying insurance premiums. The temporary staffing industry is responsible for ensuring that each employee it sends on a job is covered with the correct amount of workers’ compensation insurance based upon the job being completed.

The burden of maintaining accurate records is more complex for staffing agencies. Accurate records must be kept of where the contract worker conducted the assignment, the kind of work done, the amount of hours completed and the rate of pay. This information is important for setting the premium rates for the workers’ compensation insurance. Records must include the employee’s name, Social Security information, job title, date hired, termination date, compensation type (such as salary, hourly or commission), payroll deductions, gross pay and job classification.

Workers’ compensation premiums for temporary staffing agencies continually change, based upon the number of workers in a given period and the number of hours they worked. This requires reporting the hours worked for all employees, including those paid on a salary basis. Job requisitions (a.k.a. job orders) must tie back to the number of employees on temporary assignment to ensure accurate workers’ compensation coverage. A worker order should include pay rate information, job start date, job classification and the number of employers the agency is to provide.

Temporary workers hired through staffing agencies generally are considered to be employed by both the agency and company, even though the agency pays the salary. This means that the responsibility for establishing a safe work environment is shared by the staffing agency providing the worker and the client at which the individual is on assignment.

When sourcing temporary workers through staffing agencies, companies should require that they be named as an insured under the staffing company’s workers’ compensation policy. This entitles the company to the same level of immunities from civil litigation as the staffing company under the Workers Compensation Act.

Workers’ compensation rates are typically one of the highest variables in determining bill rates, so companies should work closely with their staffing agencies to control these costs. Close partnerships between companies and their suppliers of temporary workers have proven to reduce costs, eliminate safety risks, and provide a safe work environment for all workers.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.