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According to a 2009 article in the New York Times, business owner Chong-Mun Cheng was sentenced to 46 months in prison due to failing to pay 1.6 million dollars in workers' compensation premiums. Mr. Cheng attempted to avoid paying the premiums by stating that he had only one employee and that the rest were independent contractors. He was also not truthful about the nature of his business. Mr. Chang operated a construction business that required his workers to come into regular contact with asbestos. His crime was uncovered when many of these employees became ill and tried to file workers' compensation claims.
The premium for workers' compensation insurance can be expensive, so it only makes sense that you want to cut costs wherever you can. However, the above should be a cautionary tale to resist the urge to break the law in order to save money on insurance premiums. There are numerous legal ways you can lower your workers' compensation premiums, starting with speaking to a specialist in your line of work.
Schedule a Meeting with Your Insurance Agent
When you're trying to reduce costs for workers' compensation premiums, you may be overlooking some obvious solutions. Sometimes it takes an extra set of eyes to see hazards that you don't even notice. It is important to work with a knowledgeable insurance agent who understands the unique safety concerns of your industry. When it comes time to renew your policy, invite your agent to tour your company and ask him or her to point out any safety concerns. This could be something as simple as ensuring that you have non-slip floor covers on wet floors.
Focus on Safety
Your workers' compensation premium rates are based on the number of claims, incidents and losses that you report compared to other businesses in the same industry. Insurers typically look at your company's record over a three-year period when calculating your new insurance premium. If you want to keep your rates low, it is essential that you have a strong employee safety program in place. It should include all of the following components:
Insist on a Drug-Free Workplace
People who report to work under the influence of illegal drugs cost their employers twice as much in workers' compensations claims than workers who do not use drugs. If you don't already have a pre-employment drug screening program in place, now is the time to implement one. You don't want to be known as the employer of choice for drug abusers. You are also within your rights to implement random drug testing as long as your employees are aware of the possibility. When an employee has an accident, he or she should submit to a drug test as soon as possible. This is standard procedure to determine whether the accident was caused by impaired judgment from drug use or unsafe conditions at the business.
Understand How Your Rate is Calculated
States determine workers' compensation rates annually by assessing risk based on calculations performed by actuaries. Most states work with the National Council on Compensation Insurance (NCCI) to determine the work classification and rate of workers' compensation premiums. The construction trades, particularly carpentry, have the highest NCCI ratings.
Most states assign an experience modifier (MOD) of 1.0 to each new business. As the company starts to develop a claims history, the MOD will increase or decrease accordingly. The increase or decrease in your premium is based on the MOD number. For example, a MOD of .80 means that you will be billed 20 percent less for your premium when you renew your workers' compensation insurance policy. Insurance companies use the MOD percentage with every $100 of payroll to calculate your final premium.
Consider Group Ratings and State Sponsored Programs
States have a strong interest in reducing injuries on the job. To encourage worker safety, states sponsor initiatives such as the Drug-Free Workplace Program. You can earn deductions in your premium by allowing random inspections or focusing on preventing a specific type of injury. Compliance with these programs can be challenging, but it will be easier if you already have a strong emphasis on safety at your company.
Another way you can save money on your workers' compensation program is to be rated as part of a group. Your company must have a higher than average safety rating, which means that new businesses will not qualify. When it comes time to renew your workers' compensation insurance policy, be certain to ask your agent about joining an industry group for rating purposes.
Implement an Incident Response Plan
A strong incident response plan can eliminate the risk of multiple workers being exposed to dangerous chemicals. It can also lessen the severity of injuries for someone who has already been hurt. You should ensure that every employee within a department is trained to immediately report and respond to an injury. For example, basic first aid can prevent an employee who suffered a cut from losing an excessive amount of blood. Try to establish a good working relationship with healthcare providers in the area who you can depend on to respond quickly in an emergency. That way you won't lose valuable time trying to locate an emergency response team when you really need it.