OneSource Business Solutions Blog
Workers' compensation costs quickly reach astronomical levels if not properly handled. Depending on your industry and your prior claims, providing workers' comp coverage might be a serious drain on your profits. With few exceptions, however, you still need to provide this coverage to keep your employees safe.
Outsourcing HR can help ease this cost drain. Partnering with a Professional Employer Organization (PEO) gives your company the ability to have special cost-saving mechanisms not available elsewhere. The ROI of HR outsourcing is much greater than if you did not partner with a PEO.
To understand how a PEO can save you money, it is crucial to understand how workers’ compensation premiums are determined.
How are workers' comp premiums calculated?
Workers' compensation premiums are calculated by using payroll estimates, employee class codes, and experience modifier rates (EMR), or e-mod. Your claims history plays a large part in how your specific workers' comp premium is calculated.
The National Council on Compensation Insurance (NCCI) calculates your EMR based on several factors. The EMR is a numeric modifier to your premium. If your EMR is less than one, it will reduce your annual premium. Conversely, an EMR greater than one, it will increase your workers' comp premium.
Since the EMR calculated for your company determines your workers' comp premium, the EMR directly affects your company's bottom line. If your business has had workers' comp incidents in the past, that raises your EMR, making it difficult for you to afford workers' compensation insurance coverage.
How do PEOs reduce workers' comp costs?
Partnering with a PEO can help to reduce your workers' comp costs. There are five key ways in which a PEO achieves this goal.
1. Lower Premiums
PEOs enter into a co-employment relationship with clients. This allows your company to join the PEO's workers' comp master plan. Joining the PEO's master plan means your business adopts the PEO’s premium rates. It also means you save on up-front costs as the PEO has already paid the workers' comp plan deposit.
2. Lower EMR
Because your company joins the master plan of the PEO, you also take advantage of the PEO's EMR. Reducing the EMR directly reduces the premium paid for workers' comp coverage by moving the e-mod rate closer to one. This results in immediate cost-savings to your business.
3. Risk Management
Every business faces risk. Worker safety is one area that can severely affect a company's risk management. The Occupational Safety and Health Administration (OSHA) sets forth guidelines and regulations to keep workers safe.
PEOs help to implement safety programs creating a culture of safety within your company. Increased safety leads to fewer injuries which means fewer claims. Reducing the number of claims further reduces the EMR, saving your company money.
4. Return to Work Programs
A PEO will also help to establish a return to work program for your business. After an employee has suffered an injury on the job, establishing a return to work program can reduce your workers' comp premiums. Return to work programs help to keep employees safe and free from harm in the first place. This directly affects the number of injuries suffered, which reduces the number of workers' comp claims you deal with and helps to reduce your EMR.
5. Class Code Optimization
Class codes are complex descriptors used in determining the risk of an employee suffering an on the job injury. For example, construction class codes often have higher risk associated with them, which can increase the workers' comp premiums rates paid by those companies. Your PEO will review your class codes to see if your employees might fit into a different class code. While remaining compliant, you may be able to see a cost reduction in your workers' compensation insurance coverage simply by optimizing your employee class codes.
Keep Workers' Comp Costs Low with a PEO
Workers' compensation insurance coverage is vital to most businesses. It helps to cover employees and businesses in the event of an on the job injury. But it also can be a substantial drain on a company's bottom line. Depending on the industry your business operates in and your claims history, you may have to lose a considerable portion of your company's revenue to your workers' comp insurance provider.
Keeping workers' comp costs low is essential to keep your business churning. Partnering with the right PEO, you can achieve this goal. Your PEO can help keep your workers' comp costs low by having you join their master plan where they may have a lower EMR than what you could get on your own.
By properly managing your claims’ expense through return to work programs, the PEO you choose to partner with can help keep your workers' compensation insurance costs low. Optimizing your employee class codes can also lead to a reduction in your overall workers' comp costs.
It's not easy to reduce your workers' comp costs. But with the right PEO guiding you, your company can achieve this goal of reducing workers' comp costs and increasing profits. This is just one of many reasons why your company should use a PEO.
