Saving on Your Bottom Line: Workers Compensation Insurance

Services for Real Estate Pros with The Murray Group Insurance Services Inc

I am often approached by business owners throughout the Capital Region for advice on how to ease the cost of workers compensation (WC) insurance, particularly in this economic downturn.  My advice is always the same; the best way to save is by taking the time to set up a proper workers compensation program which will protect the business's solvency in the event of an accident.

Setting up a WC program sounds like a daunting and time consuming task, but it's not. I usually spend about a half an hour with a business owner to make sure he or she is properly covered.  That half an hour could determine if a company stays open in the aftermath of an unforeseen incident. During the consultation we examine the four primary factors driving the cost of WC insurance; wages, classification, claims, and penalties.

Amount of wages paid to employees is a primary driver in the total cost of WC.  The pitfall for many local businesses is a lack of understanding as to who is considered an employee.   According to NYS, for the purposes of WC insurance, an employee is defined as day labor, leased employees, part-time employees, unpaid volunteers (including family members, very important), and most subcontractors.   

The most common trap business owner's fall into involves employees they don't know about.  This monster rears its ugly head when a business hires an uninsured contractor or subcontractor to do work for the company.  I'm not just talking about painters and carpenters, but also temporary clerical workers, IT contractors and cleaning contractors may be considered employees according to New York State.  If these individuals perform work for your organization and do not carry a WC policy of their own, your business is required to pay WC on the wages you pay for their services.

As a prudent business practice you must require all individuals performing services for your company to carry WC insurance regardless if New York State requires it.  If the contractor carries their own WC policy you do not report the wages paid on your WC policy, saving you money.

There are over 500 industry classifications which can be designated to your employees' wages to calculate premium, each carrying its own multiplier.  Making the accuracy of the classification assigned to your employees' wages vitally important.  Example, if you have a receptionist classified as a carpenter, you are drastically overpaying.  Review each employee and their respective job functions, and then call your insurance professional to ensure each employee is accurately classified.  

Always keep this insurance industry maxim in the back of your head, "Frequency Breeds Severity."  One $500,000 claim will not affect your premiums nearly as much as five $100,000 claims.  Workplace safety is the key.  If you want to keep your WC costs down, keep the environment your employees work in as safe as possible.

Ultimately, WC penalties and uninsured claims are what debilitate a business, not premiums.   The importance of employers properly representing themselves to WC insurers cannot be stressed enough.  Too often businesses will try to misclassify an employee to save money.   From an insurance professional who has seen the damage this can cause, I am here to tell you that this not a practical savings method if you would like your business to remain solvent.  Penalties start at $2,000 for every 10-day period in noncompliance. If criminal charges are filed it can include up to an additional $50,000 fine, not to mention the repayment of owed premium. 

The fallout for employers who choose not to purchase WC is even more devastating.  If your business is uninsured and an employee gets hurt, expect  a penalty of $2,000 per 10-day period of noncompliance, plus the actual award due the injured employee (including compensation and medical costs), plus additional penalties levied by the Worker's Compensation Board, plus legal fees.  Considering the medical costs alone for a claim can be in the hundreds of thousands of dollars, an uninsured employee injury can cripple or even close a business. 

Set up an appointment with your local independent insurance agent.  He or she will be able guide you through the process of properly setting up your WC insurance policy.  As of October of 2008 insurers were able to set their own classification multipliers, so a good agent will be able to shop your policy to the insurer with the best rate in your industry.  For more ways to save please feel free to email me at the address listed below.

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