In this day and age of cost cutting, far too many business owners see workers’ compensation only through their “expense lens,” rather than understanding how important it is to their risk management program, according to Sarah Tupper, vice president of sales at FrankCrum, a national Professional Employer Organization (PEO). Unfortunately, this shortsightedness can come back to haunt them.
“The real reason business owners need workers’ compensation is because it is the sole remedy for risks associated with workplace injuries,” says Tupper. “Regardless of size, a business can be held liable for employee injuries sustained on the job. In some cases, the cost of compensating the employee can put the company’s future at risk.”
State requirements for workers’ compensation insurance vary widely, ranging from states such as Texas that do not require it at all and states such as Florida that require all companies with a certain number of employees to have coverage. Some states that require all businesses to provide coverage.
Tupper points out several misconceptions owners may have about coverage:
- Not covering every employee for every job they perform: In many companies, workers have a number of roles, such as construction workers who may do both framing and roofing. Coverage should be specified for each of these class codes, along with the percentage of time typically spent on each. Otherwise, a claim may be denied.
- Not insuring the owner: If the business had to run without the owner after an injury, it could incur substantial losses.
- Not understanding the basis for their rates: Workers’ compensation rates are based on loss history and regulated by each state. They are raised or lowered based on safety performance over a three-year period.
- Not realizing they can save money on premiums: A combination of safety programs and wise selection of carriers can make a big difference in the cost, as carriers may charge significantly different premiums. Tupper suggests regular safety training, creation of a safe work environment and enforcement of safety rules as ways to reduce the cost of premiums. In addition, she says it’s worthwhile to shop for the best coverage and cost.
“I have always advised employers to find and work with a PEO that can offer larger group rates. Some PEOs are willing to offer discounts to start-up businesses, even though they have no loss history,” says Tupper. “And if the PEO owns its own workers’ compensation insurance carrier, there should be even greater pricing flexibility and more savings on premiums.”