For those familiar with the movie “Risky Business,” you may remember the trials of Tom Cruise’s character, Joel Goodsen. He could have saved himself much grief and avoided the ensuing hijinks if he had only known about risk management services. For example, an independent loss control audit would have revealed that expensive glass eggs should not be kept in plain sight with easy access. Though admittedly, Joel would have difficulty finding a risk management service that would take him on as a client.
Luckily for the rest of us, legal businesses can easily partner with risk management services. The role of these services is to identify, assess, and control threats to a company’s assets from various sources, such as accidents, economic variables, legal liabilities, management errors or oversights, natural disasters, and even technological issues. They establish policies and protocols to minimize adverse risk and leverage positive risk to minimize costs and maximize opportunities. While risk management services can help reduce or control expenses, the full range of cost savings are only available when you outsource risk management to a Professional Employer Organization (PEO).
How Risk Management Services Control Workers’ Comp Expenses
Workers’ Compensation requirements vary from state to state. Once an employee who has been injured on the job reports the incident to management, the company is required to file a claim so the employee can receive benefits. Unfortunately, the claims process can be very complex. Using a PEO for risk management helps provide a safer environment and lowers premium costs.
Reduce Claim Size
Workers’ comp premiums have a direct relationship to claim payouts. In other words, the more injured employees you have, the more benefits they receive, and the more your premiums increase. Risk management services can help by setting up a return to work program. The goal is to get the employee back to work faster, reducing the total claim size.
Reduce the Number of Claims
Outsourcing safety training to a risk management services provider helps you formulate a safety plan and training that follows best practices. Also, while the vast majority of claims are legitimate, there are still approximately 1%-2% that are fraudulent. Choosing a PEO for risk management frees you from the time-consuming task of challenging invalid claims. The PEO will handle the challenge on your behalf.
Optimize Class Codes
Classification codes are three or four-digit codes that insurance companies use to determine the risk associated with different types of work. The class codes help estimate your premium and are a vital consideration for how to lower workers’ comp costs. Using the optimal code can help prevent overpayment by keeping your rates low. It is far too easy to use a code that you think describes the work without realizing there is another one that is more appropriate and reduces premiums.
Lower E-Mod Rate
Having a lower experience modifier rate helps reduce your workers’ comp insurance premiums. It has an inverse relationship to your insurance costs: the lower your e-mod, the higher the discount. When you partner with a PEO, you gain access to their e-mod rate, meaning that if the PEO has a lower e-mod rate than you, you benefit from lowered premiums.
Other Ways Risk Management Services Control Costs
Other strategic advantages of partnering with a PEO for risk management include the following:
- Proper documentation practices - If you don’t have appropriate documentation of a disciplinary process, you will likely lose at any unemployment claims hearings. Unemployment claims raise your unemployment insurance tax rate.
- Prevent employee lawsuits - PEOs providing risk management services continuously monitor changes in local, state, or federal rules and regulations. This practice ensures that you observe all existing HR laws so that you don’t get sued for compliance errors or receive non-compliance fines.
Error-Free Payroll
As little as two payroll errors can cause 49% of employees to start job hunting. That means it is critical that your payroll is error-free. Your choice of risk management providers can help ensure accurate payroll payment processing, reporting, and tax remittance. Ordinary risk management services don’t provide payroll administration. PEOs not only process payroll but can file employment taxes on your behalf to ensure you don’t miss any deadlines.
Why Use a PEO for Risk Management Services?
PEOs offer numerous benefits beyond risk management. Just as businesses can access a PEO’s e-mod to reduce workers’ comp premiums, they can also leverage a PEO’s group health insurance plan for more reasonable rates. PEOs use economies of scale to get better health insurance at an affordable price. PEOs can also handle a wide variety of HR tasks, from benefits administration to unemployment claim hearings.
The average ROI of a PEO is 27.2%, meaning that approximately half of PEOs have an ROI below, and half will be above 27.2%. For every $1,000 spent on PEO services, the average client benefits from $272 in cost savings for a net yield of $1,272. Few investments are as easily accessible, offer such an impressive return, and ensure compliance and reduce losses as PEO services. While Joel Goodsen may not have benefited from partnering with a PEO, the advantages are available to any business that wants to control costs through risk management services.
