Five Ways to Control Workers’ Comp Costs

Most businesses are required by law to provide workers’ compensation insurance. It protects employees, providing income and medical care if they’re injured on the job. It also protects employers; the liability portion provides coverage for lawsuits filed as a result of a work-related injury.

As an employer, the amount you pay for workers’ compensation coverage varies according to your industry and claim history. Workers’ compensation insurance for companies that engage in office-based work is generally much less expensive than insurance for industries like construction or trucking.

Regardless of your industry, there are proactive steps you can take to keep workers’ compensation costs under control. Here are some tips:

Thoroughly train new employees: Surveys show that nearly a third of workers’ compensation claims result from accidents involving newly hired employees. Take a look at your orientation program and see if you can improve overall safety by beefing up new employee training.

Make safety a top priority: The best way to keep costs down is to not incur claims in the first place. Create a safety culture throughout the company, and engage employees directly in the effort. For example, you could establish safety councils and solicit ideas from employees on how to create a safer workplace.

Pre-screen employees: Another preventive action you can take is to make sure you hire the right employees in the first place. Statistics show that workers who are substance abusers are far more likely to have an on-the-job accident. An investment in pre-employment drug screening can save a significant amount in claims down the road.

Manage claims proactively: When an employee is injured, make sure you keep tabs on the worker’s condition and plan for their return to work as quickly as possible. In some cases, injured employees can rejoin your workforce on light duty, which can reduce the amount of the claim.

Make sure employees are classified properly: There are hundreds of classification codes used to determine the appropriate level of workers’ compensation coverage. If employees are misclassified, you may not have the coverage you need, and misclassifications can result in fines.

Workers’ compensation is essential to protect your employees ― and your company. To sharpen your company’s competitive edge, it’s important to control costs. Take a fresh look at your company’s approach to safety, hiring, classification and claims management. You may find new ways to keep costs under control.

Driving Risk: When Employees Run Business Errands

Have you ever sent an employee out to pick up needed supplies? Offered to buy lunch for the crew and asked an employee to pick it up? Unless you only send employees who are insured to drive your company vehicles, you may be putting your business at risk. Your business may also incur liability if you travel on company business and have an accident in a rented car while traveling to meet a client or for other business-related purposes.

Why would your business be at risk? Because if there is an accident that causes damage to a third party and the driver’s insurance doesn’t cover the full costs, your company may be sued to recover the excess amount. Employees who use their personal cars are generally required by law to have insurance. But unless you hire them as drivers, you probably have no idea how much insurance coverage employees actually carry ― or even if they have insurance at all.

If you’re traveling on company business in a rental car, you’re probably covered by your personal insurance or by a policy purchased through the rental agency. But if you’re in an accident and cause damage that exceeds the amount of personal coverage you have, an attorney for the injured party would almost certainly seek damages from your company.

The Solution

The good news is that there’s a simple and relatively inexpensive solution: a non-owned auto insurance policy. This type of policy protects your business if an employee gets in an accident and causes damage while running a company errand. It also protects your company if you cause damage in an accident while driving a rental car on company business.

Keep in mind that non-owned auto insurance generally doesn’t cover drivers ― its purpose is to protect the organization. Non-owned auto insurance generally does not function as primary insurance; it is designed as excess liability protection. In other words, if your employee causes damage in an accident while driving a personal car on company business, the employee’s insurance would generally pay first. But if the liability exceeds the amount of the employee’s coverage, non-owned auto insurance would protect your business from being responsible for damage costs not covered by the employee’s coverage.

The Bottom Line

Liability claims caused by vehicular damage can run into the millions of dollars. Your business could be at risk if an employee has an accident while traveling on company business. Your company could also be at risk if you or an employee has an accident while driving a rental car on business. Non-owner auto insurance can provide peace of mind ― and vital protection.

Traffic Accidents May Be Biggest Risk to Employee Safety

The International Association of Industrial Accident Boards and Commissions (IAIABC) discovered that not only are highway vehicles the biggest risk of serious injury to employees, but they are also associated with some of the most costly workers’ compensation claims.

The researchers analyzed injury data from the National Council on Compensation Insurance (NCCI) and the National Institute on Occupational Safety and Health (NIOSH). Their findings revealed that only work in construction, agriculture, and certain natural resource industries caused more employee injuries than vehicle accidents. The data also showed that traffic accidents were the source of a large portion of the total number of serious disabilities and fatalities.

The study categorized injuries by industry and occupation. As an occupational class, truck drivers were found to have a substantially high risk of fatalities; however, they had significantly fewer non-serious injuries. The reverse was true for passenger cars. They were found to have fewer fatalities, but almost double the number of non-serious injuries. The researchers concluded that the size and weight of trucks protect occupants in slower-moving collisions with other vehicles. However, because trucks are prone to jackknifing and overturning, truck drivers are more likely to experience a fatal injury. Besides the high fatality rates, trucker drivers were discovered to have workers’ compensation claims of longer duration and higher average cost.

Other occupational categories that generated a high number of expensive workers’ compensation claims as a result of vehicle accidents were salespersons, messengers, and collectors. It is important to realize that these were actual claims, and not rates of injury per worker. This means that jobs that have traditionally been considered unlikely to cause worker injury carry more risk than originally believed.

The data also indicated that employees involved in vehicle accidents had a significantly higher rate of permanent total disability and workers’ compensation death claims than all other types of claims combined. The average severity of temporary total disability, permanent total disability, and fatality was greater for vehicle claims than for non-vehicle claims.

The predominant cause of injury in workers’ compensation claims resulting from vehicle accidents was neck sprain and neck pain, which accounted for 15 percent of all vehicle claims. However, these claims made up less than two percent of the overall number of workers’ compensation claims.

When examining the cost of vehicle accidents to employers, workers’ compensation payouts represent only a small part of the expense. The Network of Employers for Traffic Safety studied the combined cost of motor vehicle accidents to employers in 2000. The researchers found that medical expenses amounted to $7.7 billion, sick leave, life and disability insurance benefits totaled another $8.6 billion, while workers’ compensation claims costs approximately $2 billion for employers.

Vicarious Liability: Your Employees Could Cost You!

Respondeat superior” is a Latin phrase that translates “let the master answer.” This is legal jargon relating to the breadth of the employer’s responsibility for the actions of his employees. Literally, and in basic terms, any injurious or wrongful act of an employee within the course and scope of his employment creates liability for the employer (the master). This is commonly known as “vicarious liability.”

An employer’s liability for injury or damage caused by employees is considered “vicarious” because the act was not committed by the employer, but by individuals for whom the employer is responsible. Just like a parent is responsible for the actions of a child, even if the parent had no knowledge of what the child was doing, so too is the employer responsible for the employee’s actions.

When crews are spread over several job sites, the employer loses some direct control over the actions of the dispersed employees; however, he is not relieved of his responsibility for the actions or inactions of these workers. The “master” will be required to financially stand up and answer for any injury or damage caused, even though he may not have been aware of those actions.

Within the framework of construction operations, the employer is obviously responsible for any work done incorrectly or poorly. For example, if an employee of a plumbing contractor does not properly cement or solder a pipe, leading to severe water damage from a break at the connection point, the employer is expected to pay for the damages.

Beyond simply being vicariously liable, the employer has the potential to be accused of “negligent entrustment.” Negligent entrustment can be asserted when an employer allows an unqualified person to use a dangerous instrumentality. Construction sites teem with dangerous instrumentalities; from items as simple as nail guns and power saws, to man lifts, grading equipment, and trenching equipment. Employers owe a duty to the employee, others on the job site, and even the general public to affirm an employee’s ability to safely and correctly operate equipment necessary for their job.

To avoid breaching this duty and allegations of negligent entrustment, the employer must test employees to confirm they are adequately trained to operate the equipment they are expected to use. This can be accomplished by observing the employee’s use of the equipment and correcting misuse. Observation and training should be done by a highly trained supervisor or by the supplier. The training must include detailed safety instructions and “what-if” scenarios. Once the employee has been “cleared” to use the equipment, continued observation is necessary to ensure the employee doesn’t become careless.

A common response to recommended training and testing is, “We don’t have time for that.” This may be true, but if you don’t have time to train, do you have time to go to court? Also, do you have the funds to pay the damages? Successful negligent entrustment suits often involve punitive damages that could drastically increase the cost for that particular incident.

Vicarious liability and charges of negligent entrustment aren’t limited to your employees. You may also face liability for the actions of entities or individuals to whom you sub-contract work. Making sure you hire qualified and properly insured subcontractors is of vital importance.

You, as the saying goes, are your employee’s keeper. Not due to lack of trust, but because you are ultimately responsible for the results and consequences of their actions. Choosing, training, and monitoring your employees and subcontractors will allow you to avoid or at least minimize many of the potential problems.

Limiting Your Liability for Summer Employees

According to the U.S. Department of Labor, 2.3 million workers between the ages of 16-24 years of age were hired for summer employment. On average, one of these summer employees will be injured on the job every five seconds. Most of these work related injuries are both needless and costly to the employer.

The three main causes for the majority of these injuries are due to inexperience, lack of training and inadequate supervision. There are a number of proactive steps that employers can take to limit their exposure and reduce their liability.

Steps to Take Beforehand

Business owners would be wise to develop safe working practices for summer help. Here are some simple but practical steps you can employ to reduce your costs from job related injuries this summer:

  • Ask yourself what hazards the summer worker will be exposed to, including any pertinent risks outside the immediate working area.
  • Consider carefully the personnel who are to be involved in the training process and ensure they are well versed in the training procedures.
  • Always try to assign an experienced worker as a supervisor and ensure they keep a watchful eye on the summer worker over the first several days.
  • Make sure that any equipment to be used is examined and operational beforehand. Ensure that all legally required equipment safety guards are in place.

Take the Time to Give an Adequate Safety Orientation

Even before on the job training begins, give all your new staff a safety orientation. Here are some of the most important points to cover:

  • Appoint someone to act as a safety coordinator to explain the applicable federal and state safety laws.
  • The safety representative should stress and encourage new employees to ask questions about any aspect of the job they don’t understand.
  • Ensure that your summer workers do not hesitate to report unsafe conditions or hazards and to whom.
  • Stress that newly hired workers should not engage in any job activity where they haven’t been properly trained. Emphasize that they must always think safety first.
  • Inform new workers not to leave there work area unless they’ve been told to do so. Describe and show the locations of first aid kits, emergency alarms and exits, fire extinguishers, emergency alarms, eyewash stations, and how and where to obtain medical help.
  • Instruct all workers using hazardous equipment or processes to always use required protective gear such as gloves, hearing protectors, safety visors, and hard hat or safety shoes.

Provide Thorough Training

By taking the time to train your summer workers with good training techniques, you can dramatically reduce the risk of injuries. Here are few points to keep in mind:

  • Assign an experienced worker to give the worker their full attention until fully trained.
  • Provide detailed instructions on how to perform all aspects of the job and encourage them to ask questions.
  • Demonstrate how each task should be performed and repeat it until understood. Observe how the worker performs the task and correct any mistakes.
  • Teach the worker how to properly lift heavy items, use ladders safely and how to avoid injury from activities involving repetitive actions.
  • Monitor the worker’s progress in the first few days as this is the time when most injuries occur.

By being proactive in orienting your summer workers, you can greatly reduce your liability exposure to work related injuries. Training takes a little time but it’s time well spent.

Identifying Environmental Exposures Is Critical to Managing Risk

Environmental claims are often unpredictable and despite the fact that associated liabilities can easily cripple a business, most contractors underestimate their potential magnitude. Without sufficient insurance protection, the consequences of such claims can range from costly business interruption to bodily injury and/or property damage lawsuits. The best way to account for this unpredictability is to manage the risks that can lead to environmental claims.

The only way to develop an effective risk management strategy is by conducting a thorough site pollution assessment to determine the various levels of exposure.

Time is a critical factor in this type of assessment. Exposures can exist from both past and future pollution release events. Of the two, past exposures can be more easily qualified and managed. Commonly referred to as “legacy exposures,” these previous events are the known/unknown issues associated with the history of a site. Some typical legacy exposures include:

  • ·         Accumulations of small discharges
  • ·         Inappropriate storage and handling practices
  • ·         Poor structural integrity
  • ·         Use of pesticides and herbicides

Legacy exposures may be currently dormant, but can re-emerge during site development, or operation expansion. They can even remain inactive on the property being developed while surfacing in neighboring properties. Such exposures could also be former release events that posed minimal risk initially, and required little remediation. However, now they require additional cleanup. Or the added remediation of these events could also be the result of a change in regulatory standards.

The second level of exposure results from the possible future occurrence of a pollution release event. Known as “operational exposures,” these risks can trigger a major cleanup effort, as well as bodily injury and property damage loss. These events can be sudden and easily identified, or they can be the outcome of a gradual process that has gone unnoticed.

The preferred way to manage these exposures is by transferring risk via an environmental insurance policy.  Environmental insurance should be part of the risk management strategy of real estate owners, facility operators, and any other party with a financial interest in a site. An environmental policy can be written to cover only legacy concerns for transactions where there is a risk transfer from seller to buyer. It can also be written to cover only operational risks for a leased location, or if the insured feels that the site history does not warrant coverage for legacy events. Additionally, policies can also be crafted to provide full coverage for a single site or multiple locations.

When Is It Sexual Harassment and What Can Be Done to Prevent It?

Most employers know that sexual harassment is a form of discrimination that violates Title VII of the Civil Rights Act of 1964. The legal definition of sexual harassment is “unwelcome verbal, visual, or physical conduct of a sexual nature that is severe or pervasive and affects working conditions or creates a hostile work environment.”

While this definition may seem clear cut, the issues surrounding what constitutes sexual harassment are not. One of the most difficult aspects of examining a sexual harassment charge is deciding whether or not the conduct in question was truly harassment, and not just an innocent exchange between consenting adults.

There are two scenarios, that when they exist, are a definitive sign of sexual harassment:

1. Hostile environment – This is the most prevalent type. A work environment becomes a hostile environment when an employee is made so uncomfortable by a pattern of repeated, unwanted behavior that they cannot perform their job.

2. Quid pro quo – This Latin phrase literally means “this for that.” Quid pro quo occurs when a supervisor, or other person acting with authority, withholds, demands, or promises a benefit if the employee submits to unwelcome sexual conduct.

Keep in mind when trying to determine if an employee’s/supervisor’s actions constitute harassment; you have to view the conduct in question from the victim’s perspective. The victim determines whether the conduct is severe and pervasive enough to create a hostile environment. The harasser’s intentions do not play a role in the matter.

If there are recurring incidences of employees making sexual harassment charges in your organization, it is probably not a question of supervisors being unaware of inappropriate behavior. Rather it’s a matter of supervisors not taking action when they see inappropriate behavior. Failure to act is far more common than you may think. It is usually the result of a supervisor feeling unsure as to whether the behavior was really unacceptable, or not knowing the proper way to confront the parties involved.

The best way to remove these hindrances is to:

· Establish a sexual harassment policy that sets forth what actions are acceptable, what actions are considered sexually threatening, and what steps will be taken if anyone is found to be in violation of company policy. Once you have clearly defined your policy, document it and provide a copy to each employee. All employees should sign a disclosure that says that not only have they read the policy and understood it, but they also understand the consequences for failing to uphold it.

· Provide training – Supervisors should be given appropriate training in the correct manner of investigating a charge of sexual harassment including the types of questions to ask, how to file a written report, and to whom the report should be given.

It is also a good idea to be proactive in avoiding formal confrontations by periodically walking around and talking with employees. Many times an informal conversation can tip you off to a potential powder keg.

Top Tips to Streamline the Premium Audit Process

Are you due for a workers’ compensation premium audit? Audits are how insurance rates are determined, and it’s possible that an audit will uncover information that can actually save you money. In any case, it pays to be prepared. These five tips can help you get ready.

  1. Let your broker know when there are changes in your staffing, payroll or areas of operation. This is important not just at audit time but all the time. Your rates are based on variable rating information, including the number of employees, job classifications, the states in which you operate, etc. Updated information results in more accurate premium assessments.
  2. Get your records ready. Your auditor will need to see records such as federal and state tax returns, ledgers, checkbooks, contracts and employee or contractor tax documents. If you prepare your records in advance, you’ll speed up the audit process.
  3. Make sure you break out various types of compensation in your records. For example, to set your premium, your broker considers pay but not contributions to employee benefits packages and other perks, so it’s important to make sure your records are clear on the various types of compensation. Also make sure overtime pay is clearly defined since it’s classified as regular pay for workers’ compensation insurance purposes.
  4. Ensure that contractors have their own insurance. This is important not only from an audit standpoint but from a liability prospective as well. If an uninsured contractor has an accident while performing work on your behalf, you can be held liable. If an audit identifies contractors for whom you don’t have certificates of coverage, you can be charged for their premiums.
  5. Remain on hand to answer questions. As your auditor reviews your material, he or she may have questions or need additional data. If you are available to provide answers, your audit will be completed more quickly.

By following these tips, you’ll be more prepared for your workers’ compensation premium audit. A fast, efficient audit process can save time for both you and your auditor, so it pays to be prepared.

Returning Employees to Work Has Legal Implications

When making the decision to return an injured employee to work, there are several significant legal issues that must be considered as a result of both state and federal law.

The first consideration is your state’s workers’ compensation laws. While a common objective of workers’ compensation laws is to facilitate the injured worker in returning to a productive job, not all states approach this goal in the same manner.

Your state’s approach probably falls into one of the following three categories:

  • States that provide for a specific number of weeks of rehabilitation and a limited amount for training for the injured worker. After training is complete, the worker is considered rehabilitated. This training component also limits the employer’s liability to find another job for the claimant.
  • States that are considered defined benefit states. A worker is paid for his temporary total disability. If disability reaches a predetermined percentage of body loss, however, the employer can issue a lump-sum payment and close the case, whether the worker can return to work or not. Rehabilitation is a minor part of this approach.
  • States that use loss of earning power as qualification for benefits. Once a worker is injured, his workers’ compensation benefits will continue for life unless he is proven to have an earning power. In these states, the employer at the time of injury must offer a job to the injured employee if one is available within the employee’s physical restrictions. If this is not possible, the law requires that rehabilitation efforts begin.

The Americans with Disabilities Act (ADA) also presents certain legal considerations concerning the manner in which an injured employee is returned to work. The first consideration is regarding the collection and maintenance of the injured employee’s medical information.

The ADA requires employers to collect this information to determine how to accommodate an employee’s disability and whether the employee is capably of performing a specific job. However, the ADA also mandates that employers:

  • Treat this information as a confidential medical record.
  • Maintain this information on separate forms and keep the forms in separate files.
  • Not use this information for any purpose that is inconsistent with the ADA.

There are also specific rules regarding the disclosure of such information. Supervisors and managers may be informed about necessary restrictions and accommodations arising from the disability. In addition, first aid and safety personnel can be informed if the employee’s condition may require emergency treatment.

Another key consideration under the ADA is whether or not the returning employee is eligible for a particular job. The law says that if an employee can perform the essential parts of a job, they are eligible, even if certain minor aspects of the job cannot be performed. Employers are required to make reasonable accommodations as necessary so that the employee can perform the job. This is what is commonly referred to as a “light-duty” assignment.

Decisions regarding necessary accommodations must be accomplished through a joint process involving the employer, employee, and the employee’s doctor. A company refusing to make reasonable accommodations is at risk for a lawsuit. A worker who refuses reasonable light-duty work risks having their benefits or employment terminated.

Control Workers’ Comp Costs by Lowering Your Experience Modifier

If you are looking for ways to keep your workers’ compensation insurance costs under control, it’s a good idea to take a look at your experience modifier. In fact, tackling your experience modifier is generally a far more effective method of lowering your costs than shopping around for cheaper workers’ compensation coverage. That’s because the experience modifier is used to calculate your individual rate.

However, many employers don’t fully understand how experience modifiers work. They don’t completely understand how lowering it can help them drastically reduce workers’ compensation costs. Let’s take a closer look.

What is an experience modifier?

The experience modifier is a formula insurance companies use to predict losses that an employer is likely to incur. To arrive at the experience modifier, the insurance company considers losses over a three-year period in history, not including the current policy period. It takes into account not only amounts actually paid as claims but also estimates of future payments for medical treatments or compensation that will be paid to make up for lost wages.

Your experience modifier compares your actual losses with the expected losses for employers operating similarly sized companies in your state and industry. If your experience modifier is 1.00, that means your losses match the average rate. A modifier that is higher than 1.00 reflects higher losses, while a modifier less than 1.00 means lower than expected losses.

Your experience modifier is used to calculate your workers’ compensation insurance premiums, so the lower your modifier, the less you’ll pay. Let’s take a look at ways to lower your experience modifier.

Toward a lower experience modifier

Here are a few tips on lowering your experience modifier:

Create a safer work environment. Since your experience modifier is derived from your workers’ compensation claims history over a three-year period, the most obvious first step is to create a safer work environment. A workplace focus on safety is a great way to improve morale and help keep costs down. Some companies form safety committees to find new ways to reduce workplace injuries and to provide training that helps employees stay safe.

Return employees to work as soon as possible. Another excellent way to keep costs down is to consider a return-to-work program for injured employees. Remember, workers’ compensation claims involve not only medical bills but also claims for lost wages. In many cases, injured employees who are not yet able to return to their former jobs can come back to perform light duty jobs while they complete their recovery. This helps lower claims costs. It’s a good idea to work closely with physicians who specialize in workplace injuries since they can more efficiently treat your employees and may have more experience authorizing returns to work for light duty assignments.

Hire the right people. Another long-term strategy for lowering your experience modifier is to implement good hiring practices. For example, you may want to consider a candidate background check and drug screening program. Employees who use drugs are far more likely to be injured on the job, lowering morale and driving up your costs. It’s always a good idea to be selective about whom you hire, and the likelihood of future on-the-job injuries is one more factor to consider.

The bottom line

When workers’ compensation insurance prices rise, it’s tempting for employers to shop around for new coverage. But the fact is, employers themselves control a major factor in determining rates: the experience modifier. Take control of your workers’ compensation costs by taking steps to create a safer work environment, return employees to work and hire the right people. Not only will you improve operations and employee morale, you’ll save money too.