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Benefits to a Small Business

Most small business owners feel that workers’ compensation is a burden they must pay just to remain compliant with state laws. This is especially true for businesses that don’t have employees who work in high-risk fields. After all, how much risk does the administrative assistant have?

The reality is even an administrative assistant can get hurt or ill from work; many workers’ comp claims for those working at desks include chronic back problems or carpal tunnel syndrome.

A small business owner needs to consider what he gets for his workers’ compensation coverage. Should an employee be unable to work due to a work-related accident, the employer is no longer on the hook for medical expenses, rehabilitation expenses, retraining, and lost wages. These costs could exceed hundreds of thousands of dollars, if not more, depending on how bad and how long the person is injured. By having workers’ compensation, the employer can’t be sued by employees making a claim on the policy. This alleviates a huge financial liability should even one employee get hurt.

It also alleviates a second burden: being down one man. If a business is missing a person critical to production and revenues, being understaffed could dramatically and negatively affect profits.

Because workers’ compensation pays the wages of the injured employee, the business frees up labor capital that can be used to get temporary help so that can operations continue.

Workers’ Compensation Laws by State

Workers’ compensation insurance is required by every business owner throughout the country, except for the state of Texas where it is voluntary. While state laws vary, know that there are fines, penalties and even felony and misdemeanor charges that can be filed against a business owner for not complying with workers’ compensation laws in the state where employees work. This makes the growing use of remote workers and traveling workers more difficult to insure.

Should an employer not comply with workers’ compensation laws, the business could be shut down by the state with a court-ordered cease-and-desist until all penalties and fines are paid, injured workers receive proper benefits and the business is back in compliance with all workers’ comp laws.

Required Employee Coverage and Exemptions

Every workers’ compensation policy must cover part-time employees and full-time workers with adequate insurance coverage for work injury liability. While business owners and independent contractors are generally exempt from workers’ compensation, they could elect to obtain coverage by their policy.

This is valuable to owners or independent contractors, such as those in the construction industry who may need coverage in order to get state licensing or business contracts from general contractors requiring the insurance of all subcontractors.

It is important that a business owner fully understands what constitutes an employee. Both the IRS as well as the insurance companies have cracked down on employers classifying employees as independent contractors to avoid paying payroll taxes and a workers’ compensation policy.

Who Qualifies as an Employee

The IRS defines the rules on what constitutes an employee and an exempt employee.

Employees are told when to work by schedule, where to perform the work and what programs or supplies to use. Training and direction are provided in detail to employees where independent contractors have more freedom.

Employees are also under the financial control of an employer, meaning they are unable to work for others because the employer has the equipment and supplies required to complete job duties. Independent contractors, on the other hand, are able to seek out other employment opportunities and often have more than one client paying them for work.

Employers are responsible for paying Social Security, Medicare and unemployment taxes for employees. Employees are paid via a Form W2 while independent contractors are paid via a Form 1099 with no taxes or fees withheld from the payment.

Factors in Workers’ Compensation Premium

The workers’ compensation rate is defined by the amount of payroll a company, the work classification of jobs and a company’s claim history. Payroll costs are the baseline number used and is required for every workers’ comp quote. The insurance company looks at payroll per $100; this means $100,000 of payroll is divided by $100. This leaves $1,000 as the amount used for the workers’ comp calculation.

That payroll number is then multiplied by the work classification of the employees based on job duties. A clerk has a lower risk level than a construction worker thus the work class has a lower rate. Every employee within the company, regardless of the company’s overall industry, is rated based on what normal job duties are performed. This is important to understand when getting a workers’ compensation quote to properly price the premium.

For example, a starting work class rate in Oregon for a sales professional is 13 cents while an auto repair mechanic is $1.66. A business with $100,000 in sales payroll might have a starting workers’ compensation premium of $130 depending. This could go up depending on the claims history of the company and the insurance carrier’s rating of the industry.

Getting A Workers’ Comp Quote

With so many things going into workers’ compensation premium, getting the right insurance quote can make a big difference. Yet, shopping for workers’ compensation insurance can be overwhelming since the business owner must have a solid understanding of the information requested in the quote.

As a business owner, you must understand that even though there are work classifications and a formula defining the rates, every carrier has their own business model of premium rating and pricing risk. When comparing rates, a business owner needs to know how the quote classifies each employee. If there are differences between application input, there could be dramatic variations in the quote and final premium.

These classifications could be different even among contractors such as a landscaper who mows grass and one who trims trees. Understanding these nuances is what makes comparing workers’ compensation quotes so difficult.

How PEOs Make Getting Workers’ Comp Easy

A professional employer organization (PEO) does a couple of things to help business owners simplify workers’ compensation. The first is the ability to group businesses together that saves on the overall rate. The second is to do the shopping without hassle for the business owner. A PEO is a human resources organization that maintains the legal regulations, tax compliance, insurance needs and benefits packages.

A PEO serves as a partner to businesses; it becomes the employment arm of the company, hiring employees and dealing with all issues in human resources. It then leases the employees back to the partner company. This model allows a PEO to scale with many business partners thus large pools of employees. Large pools spread risk and generally reduce prices.

Filing A Workers’ Compensation Claim

When a work-related injury happens, a workers’ compensation claim is filed directly with the insurance company’s administrator. Every state has specific timelines and regulations when filing a claim that all parties, even the injured worker must comply with.

For example, in California, employers must automatically release $10,000 in injury claims payments to the injured worker before the claim has ever been investigated and approved. Should a claim be denied for fraud, the insurance company is left trying to collect the funds back from the party or insurance company. However, failure to comply can lead to civil and criminal penalties so it is in the best interest of the company to adhere to the law.

The first step in the workers’ comp claim process is to document the incident. The injured party must report and provide a written documentation of when and how he was injured. In Oregon, this notice is called a Report of Job Injury or Illness (Form 801) and is provided by the employer. Any eye witnesses should be interviewed with their recollection of events noted as well.

Notifications and Filing

The employer must notify the insurance carrier and administrator within the designated time frame. According to Oregon law, this is done by forwarding the Form 801 to the insurance carrier within five days of receipt. A document called the Workers’ and Physician’s Report is sent by the doctor examining the injured worker directly to the insurance company.

Records of employment, wages and job duties are analyzed during the start of the claim along with the medical records and assessments during treatment. The doctor will provide a notice determining functional capacity with any job restriction if the employee is able to return to work but not his actual job. A Notice of Acceptance or a Notice of Denial is sent by the insurance carrier’s administrator listing injuries and medical conditions or accounting the reasons for denial.

The Role of the PEO in Claims

While the insurance carrier is going to administer the workers’ compensation claim, it needs cooperation and assistance from the business. There is a lot of paperwork that is done during a claim and everything must be done on time to prevent penalties or adverse legal action being taken against an employer.

In the same way that the PEO handles all the payroll taxes for a small business owner, the PEO works with the insurance carrier’s administrator providing all required employment documents. These documents include employment history, recent payroll data, and job description. The PEO is well-suited to handle this type of supporting role in the claims process and many small business owners are glad to get it off their plate. The paperwork in the claims process is time-consuming and overwhelming for someone who isn’t regularly doing it.

A Workers’ Compensation Audit

Every workers’ compensation policy has an audit at the end of the policy term. Don’t confuse this audit with an IRS tax audit. This audit is conducted by the insurance company and isn’t because anyone suspects that the business has done anything wrong.

The workers’ comp insurance audit exists because the insurance premium is based on payroll estimates made at the time the policy. Because it is an estimate of employee payroll, the insurance company needs to confirm actual payroll. It is nearly impossible to predict what payroll is like for an entire year; employees get overtime, some may get fired or new ones get hired. All of this affects payroll costs and thus the final premium.

The auditor gathers information to confirm total payroll costs and make sure that employees are assigned the right work classification for rating purposes. If an employer has overpaid premiums during the audit period, a refund check is issued. If the employer has underpaid premiums because he hired new people, a bill is sent for the balance. This is required before the policy is renewed.

Avoiding A Big Audit Bill

Audits are also used to determine the workers’ compensation premium for the next insurance term. The audit gives the best picture of the current employment situation used to estimate the next term. Many PEOs work with insurance carriers that have pay-as-you-go workers’ compensation policies, which means it is directly tied to bi-weekly or monthly payroll.

The pay-as-you-go option prevents huge unexpected bills when the audit is over. As people get hired, the premium is adjusted as you go along, which makes things easier for business owners to maintain consistent cash flow.

Working with a PEO simplifies the audit process even further for a small business owner who no longer needs to do complete the audit paperwork himself and can transfer that duty to the PEO who maintains the master policy.

Help Keep Workers’ Compensation Costs Down

PEOs do a great job of helping to lower risk because they increase the risk pool. While there are some state regulations that require the PEO to maintain pro-rata information on each small business partner’s loss history, the overall benefits still exceed the additional paperwork and individualization.

Beyond the pooling employees to reduce overall human resources costs, the PEO helps a small business reduce workers’ compensation costs in another very significant way. Because the PEO is a human resources organization, it is versed in creating, implementing and training employees on safety protocol. When employees follow better safety regulations, fewer accidents happen.

Since workers’ compensation premiums are based, in part, on a small business’ claims history, the fewer claims a business has, the lower it will keep its premium. Many small business owners know they need to keep safety protocol as a top standard, but may not know how to do so. The PEO offers the resources to do this.

Workers’ Compensation and Remote Employees

It is more common for businesses to hire employees on a remote basis. These aren’t independent contractors but legitimate employees who are on payroll with benefits. When a small business has employees working remotely, they must comply with the state employment laws where the employee resides. This could be very difficult for a small business owner to comply and afford workers’ compensation in more than one state.

The PEO becomes the most cost-effective solutions for small business owners to provide multiple insurance policies to employees living in different states. An employer protects itself from accidentally violating state rules and regulations if an employee has a workplace accident. While the rules may become a bit blurred when it comes to remote workers and what constitutes a work accident, coverage must still exist.

A recent workers’ compensation case went to a District Court of Appeals that said a remote employee who tripped over her dog while making coffee could not claim that as a work-related injury. However, there is decent even in the court as to what could constitute normal workplace injuries, meaning if an employee tripped over another employee’s purse in the break room, that would constitute a claim.

Freeing Up Businesses for Productivity

Fortunately for the small business owner, the PEO will handle maintaining the compliance and let the insurance companies, lawyers and the courts battle over what constitutes a claim and what doesn’t. A business owner doesn’t want or need to be involved in the minutiae of claims administration or arguments, nor should it be.

The idea with workers’ compensation is to provide employees with remuneration if they are hurt at work. It also alleviates a business owners’ burden to pay those costs from the business budget while still being down an employee who is unable to work. With the medical expenses and lost wages paid by the insurance company, the business is able to focus on keeping operations moving.

Of course, the business owner is still responsible to keep the job position open for the employee per the requirements of state laws. That being said, he frees up capital to get temporary help to keep business moving forward while the employee is in rehabilitation. Aside from the expensive costs of medical care, this is a huge financial benefit to the business that workers’ compensation insurance pays.

Request a Workers’ Compensation Insurance Quote

Getting a workers’ compensation insurance quote is easy when you go through a PEO. It takes just a few minutes to complete the questionnaire about your business operations, payroll, and employees’ job duties. Because the PEO already has a master policy in place, you can get coverage quickly making the process much easier than getting it on your own.