HR outsourcing is a growing trend that can help businesses save money, improve employee engagement, and keep workers safe on the job. The only comprehensive solution, however, is a Professional Employer Organization (PEO). Learning how PEOs help construction companies can give you an idea of how you could save money on your workers’ comp coverage.
In certain industries, employees suffer more on-the-job injuries than other industries. While paying monthly workers’ compensation insurance premiums might not be enjoyable, this can be an invaluable service that helps you shoulder the financial burden of employee injuries.
Construction workers get injured in droves. According to the Bureau of Labor Statistics, over one-quarter of all construction workers have been injured at work. Having constant claims filed against your workers’ comp policy could hurt your cash flow and increase your premiums. With the right HR outsourcing partner, you can cut these costs while simultaneously increasing the safety of your workers.
How are Workers’ Comp Premiums Calculated?
Workers’ compensation insurance coverage is not cheap. The more dangerous your industry is deemed to be, the more likely it is that your company’s premiums could wreak havoc on your budget. Companies that do not partner with a PEO may be subject to a 25% down payment on their workers’ comp policy.
Here’s the formula to calculate workers’ comp premiums:
Payroll (per $100) X Classification Rate X Experience Modifier (e-mod) + State Taxes and Fees
Now let’s look at the four components of this formula.
Workers’ comp insurance companies use payroll to start your premium calculation. For each $100 of payroll to each employee, your company will owe a certain amount, determined by the next factor.
Different companies are classified using different rates. The more dangerous an industry, the higher the rate applied. Most states use the NCCI classification system.
The experience modifier is what your insurance carrier uses to determine your specific company’s risk within your industry. They do this by looking at your claims history compared with the industry standard. The more claims you have, the higher your experience modifier rate and the higher your premiums go.
There is no federal tax on workers’ compensation premiums, but many states do levy a tax. Small businesses can deduct these taxes, so there is a small benefit.
Why is Workers’ Compensation Insurance Important?
With few exceptions, workers’ compensation insurance coverage is required. Workers’ comp is meant to provide injured employees with benefits to help them get through their time out of work. The benefits can include medical coverage and lost income.
Workers’ comp is also no-fault. This means that, unless an employee intentionally injured themself, they would be eligible for benefits. Workers’ comp can also help protect your company from costly employee lawsuits related to on-the-job injuries.
Having workers’ compensation insurance coverage also gives you peace of mind. Workers will inevitably suffer on-the-job injuries or illnesses. Without a safety net of workers’ comp insurance, your company would be forced to bear the financial burden associated with an injured worker. This could include a potential employment lawsuit related to their injury.
But with workers’ comp coverage, you can rest easy that, even if you have employees get injured at work, you have coverage that will help both you and your employee weather the storm.
How do PEOs Impact Workers’ Comp Premiums?
A PEO can help you better manage your workers’ compensation costs in many ways. When you partner with a PEO, they have already paid the upfront costs to start their workers’ comp plan. This means that you can avoid a costly initial payment and instead pay-as-you-go on a monthly basis.
Partnering with a PEO also means you gain access to their experience modifier rate, which lowers premiums. Any claims you have from injured employees will go against the PEO’s workers’ comp plan and experience modifier rate.
A PEO also helps reduce the number of claims filed by injured employees. Your PEO can help you implement a world-class safety program. By training and re-training employees on how to remain safe at work, you can work to lower the number of injuries that your employees suffer.
A trusted PEO partner will also help you manage your workers’ compensation claims. Your PEO will challenge invalid claims on your behalf, so you don’t have to worry about the time required to deal with those claims. When your PEO handles it all for you, you can focus all of your attention on your core business needs.
Your PEO can also help you develop a return-to-work program. This type of program helps to get employees back to work sooner, even if it means they come back to work doing something other than their regular job. Getting employees back on payroll takes them off workers’ compensation insurance coverage, reducing the overall time you have workers collecting benefits.
Workers’ Comp Without Breaking the Bank
A PEO can provide your company with many valuable benefits. These benefits obviously include workers’ compensation insurance guidance and cost reduction, but also countless more services and support that can increase your cost-savings and employee retention. A PEO can provide your small business with a genuinely comprehensive HR outsourcing solution tailored to fit your needs and budget. Workers’ comp is just the beginning.