3 Ways to Save on Workers Comp
Written by Adler's Insurance Agency on Mar 20, 2017
Minimum Wage Hike
Making sense of the increased dollars
The topic of minimum wage increases has been a hot-button issue that has steadily gained traction in recent months. While the rest of the world gets red-faced with one another, as a business owner, it’s important to stay focused on what this means for you and your employees.
Increased wages will mean increased payroll, which directly affects your workers’ compensation premiums. For many, if not all business owners, the subject of workers comp sends shivers down their spines.
Fortunately, paying workers comp doesn’t have to be all doom and gloom. In this post, we’ll take a look at 3 ways to save on your workers comp premiums, to ensure your employees stay covered, and your bottom line protected.
1) Calculating Overtime Pay
Workers compensation should only be paid for straight time, also known as standard payroll. Where many employers get a little flummoxed is in the area of calculating workers comp for overtime pay.
In reality, it’s a lot simpler than it sounds. To calculate the amount your hardworking employees are owed, simply use the following formula: If paying a time-and-a-half overtime rate, subtract one-third of the overtime payroll. If paying double time, you’re entitled to exclude half. This will save you money.
2) Pay As You Go Policies
A pay-as-you-go workers comp policy allows an employer to pay his or her workers compensation premiums on a weekly or monthly basis, based on the payroll actually paid to employees. This method has quickly gained popularity, as it allows for more accurate payments and better cash flow management.
While there are numerous advantages for a pay-as-you-go policy, let’s take a look at three particular benefits:
a. Accurate Cash Flow Management
– Pay-as-you-go workers compensation allows you to pay into the account in real-time, which means you’ll only pay precisely what you’re required. Payments are based on actual data, giving you the ability to better manage your cash flow month to month. This is an extremely important asset for businesses with seasonal cycles or payrolls that vary by job, such as wholesalers, landscapers, clothing retailers, etc.
b. No end-of-term audits
A growing business, or a business with heavy seasonal cycles, runs the risk of underpaying or overpaying with tradition worker comp policy. Traditional policy premiums are audited at the end of the year.
After the policy’s expiration, your insurance company will request a report of your actual payroll during the coverage period. If that number is different from the one on your application, you could be charged an additional premium (if you underpaid) or be given a premium credit (if you overpaid), which puts quite the squeeze on your operating cash flow.
Pay as you go eliminates the need for an end-of-term audit, because, as mentioned previously, payments are based on actual, accurate data.
c. Employee classifications
A third advantage to pay-as-you-go workers compensation is the ability to easily break your employee payroll up by job class function. Every contractor is familiar with the nightmare that is workers comp class codes (discussed below) and the rating associated with each class code. Pay-as-you-go provides an easy format to break out the payroll assigned to each class code.
This helps to mitigate the chance payroll assigned to your less expensive class codes ends up getting lumped in with your most expensive class code.
3) Class Codes
Workers compensation class codes are codes used to identify specific categories of work. Each employee is assigned a code according to their job description, with varying rates depending on the risk involved.
For example, a construction worker will have a more expensive work comp rate than a clerical employee, because more dangerous work is being performed.
Insurance companies must be able to categorize various types of work into class codes to be able to effectively estimate workers compensation rates for the appropriate risk associated with the work being performed.
As mentioned earlier, workers comp class codes can be quite a headache. Class codes are state-specific, and how you classify plays a major role in the cost of your policy. An accidental misclassification error, means you'll be responsible for paying the outstanding amount you owe once the premium has been recalculated.
Having an experienced insurance agent classify your employees can allow you to save money upfront. Be sure to discuss with a knowledgeable Adler’s agent to make sure your employees are correctly classified.
Regardless of the size of your business, it’s important that you’re able to remain focused on what you do best - growing and flourishing. Got questions? Give us a call at 845-356-5656
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