If you have employees, then you have Workers Compensation[i] (work comp). It is one of the most basic forms of insurance a company has yet often comes with the most questions from my clients. There are a lot of misconceptions with Work Comp that lead to a lot of poorly managed programs. Over the next few weeks we’ll try to will focus on a series of work comp topics.
- The basics / History (today),
- Loss prevention,
- How to report and manage a claim,
- Importance of a return to work policy,
- How you can dispute a claim
- Understanding what is an Experience Modification factor and how it affects your premium.
There are varying reports but some point to the first history of Work Comp in the states as being adopted in Wisconsin back in 1911. Prior to Work Comp the only source of compensation for an injured worker was through the courts. As an injured worker, it put you in a compromising position taking your employer to court in an attempt to prove their negligence. Today’s Work Comp laws are “no-fault”. Simply meaning employers give up the right to defend and sets up exclusive remedy for employee. They no longer have to prove negligence but they can also no longer come back and sue employer.
That’s the history here are the basics. Work Comp base premiums are compiled through an equation derived from the amount of payroll per job function within your business. Each job function is assigned a class code rate per $100 of payroll. These rates are set by the state using a three year average loss ratio factor for each class code.
A small sales organization will have a sales force and clerical office back-up. Their rate might look something like this:
- Outside Sales : Class Code 8742, Rate $.77, Payroll $350,000 = $2,695 in premium
- Clerical support: Class Code 8810, Rate $.30, Payroll $75,000 = $225[ii] in premium
This is the base premium. Then your personal rating history is factored into the equation with your Experience Modification factor (a future topic). This is how you compare to your competitors in your specific industry. Once this is totaled you add in a small Terrorism Charge and Catastrophe Provision Charge (since 9/11 this is mandatory on all Work Comp policies to help fund future incidences and not crippling the insurance industry). Last you have your paper filing charge from the state the expense constant. This is a flat $220 regardless of if you pay $200,000 in premium or $2,000.
So if your premium’s are determined by rates set by the state and your loss history how do companies compete for your business? This is the question you need to be asking your agent.
The answer is in the form of dividends paid out post audit and more impotently services provided. What types of loss prevention, risk management strategies can they help implement that will directly affect cutting your bottom line (also a topic for a future article).
I’m looking forward to contributing to this series on Workers Compensation over the next month. The goal is to shed some light on a serious topic, help give insight to long term cost savings solutions, create a safe working environment for your employees and as always help you understand what your paying your insurance company for.
For more information on workers compensation in the state of Wisconsin checkout www.wcrb.org
Good luck and stay safe.
[i] All employees working for an employer (other than farmers) with three or more workers are protected immediately by the Worker’s Compensation Act. Employers with fewer than three workers come under the law if they pay wages of $500 or more in any quarter of a calendar year. Their workers are covered 10 days after the end of that quarter. Farm workers are covered if the farm employer has six or more employees on 20 or more days in a calendar year.
[ii] Minimum premium would apply to a work comp policy $900 at inception, if it audits out less the least amount of exposure would be $220.