Practical tips for reducing workers' comp costs.

It is a given that examining each line item of your budget for every project with an eye toward finding ways to cut costs is essential to a more profitable bottom line. Workers' compensation insurance (workers' comp) is one such item that is frequently viewed as a fixed cost, and it can pack a big punch. Finding practical ways to reduce workers' comp premiums can be a real coup, especially when you consider that in 2005, the NY State Workers' Compensation Board resolved all issues for more than 300,000 new and reopened claims.

Key Factors in Determining Premiums

Workers' comp premiums are largely determined by two key factors:

1. The individual contractor's "experience modification rating," (EMR) which is based on the company's safety record. For contractors, an EMR of 1.0 is average for the industry. By lowering that to 0.8, a contractor could save significant amounts.

2. The classification of its workers. Insurers have over 600 categories and standard exceptions to choose from when determining a workers' classification. Whether an employee is classified as a sandhog or a laborer can dramatically increase your premium. Lowering EMR

Regulations, specifications, inspection requirements, and job safety programs all seek to deal with the challenge of construction site safety. The job is often dangerous, and a spotless workers' comp record is unlikely. The bigger issues might be how familiar you are with the volume and types of claims your workers have made, whether you can quantify a particular "danger zone" so you can correct the hazards, and what you have done to train workers to identify and avoid potential problems.

Ironically, a history of small, recurring claims can affect your premium more than one large claim. That is because accidents can happen, but a series of claims may indicate an ongoing problem that is not being addressed.

Taking the time to analyze your claims history can point out a weakness in your safety training or a potentially dangerous area on a job site. This, in turn, can provide an opportunity to make changes that can make your site safer and reduce your workers' comp premium.

There are other several ways to lower your EMR. Some states have programs that offer discounts on premiums for companies with particular safety programs such as a drug-free workplace program. Another good way to lower your premium while still complying with statutory requirements is having minor injuries treated by local health care professionals. Here, the key is making sure you keep proper documentation. Finally, your state may run authorized industry safety groups that can minimize cost by spreading the risk across a number of contractors. Such groups are established to devise safety programs that will reduce the number of accidents and improve medical care for employees. Classification of Workers

Looking at just three broad worker classification areas in New York State, in 2004 nearly 19% of all claims with first indemnity benefits were in categories affecting contractors: 8.3% of those claims were classified under construction; an additional 2.6% fell under real estate, rental, and leasing; and 8% were categorized as transportation and warehousing incidents. Any of these numbers can directly affect your workers' comp insurance premium.

You may be able to lower your premium by hiring an independent auditor to review each of your employees on the basis of the job they perform. Because premiums increase along with on-the-job risk of injury, you want to be sure that everyone is assigned to the correct category. For example, the clerical person who manages your truck repair schedule should not be in the same category as a roofer just because they both work for your company. Similarly, a heavy equipment operator should not be in the same class as a security guard. The risks simply are not the same for these disparate job tasks.

In computing your premium, however, your insurance company may send an auditor who spends only about an hour at each job site determining how to categorize the various jobs at that site. Often, the unintentional result is the misclassification of employees. Ensuring that this does not happen can result in a refund for past payments as well as save you a lot of money in future premiums.

Conclusion

Understanding the factors that go into calculating your workers' comp payment is the best thing you can do to lower your premium. Analyze each of these elements to ensure that you are providing the proper safety and health training, have reviewed the pertinent employee classifications, and explored other options, such as joining industry safety groups. Substantial savings are possible for those who make a concerted effort to analyze their coverage and monitor their costs.

MARC WIEDER, CPA 

ANCHIN, BLOCK & ANCHIN LLP