The worker’s compensation program protects employers by covering the medical costs and lost wages of injured employees. When an employee is receiving workers’ compensation benefits, you do not need to pay them. You should pay them their regular pay rate if they are still working for you. Accordingly, workers’ compensation would likely cover only medical benefits, not lost wages.
In the event of an injury, your insurer-not you-will covers the cost of an injured employee’s medical treatment, disability, and other benefits as long as the policy is active. So why do some companies fight workers’ compensation claims? For one thing, they fear premium increases. When determining premiums, providers consider your loss history, but fighting a workers’ comp claim will only encourage your injured worker to hire a lawyer. Once a lawyer is involved, your costs will skyrocket. Studies suggest attorneys can make workers’ compensation claims 388 percent more expensive than those without. The reality is that fighting workers’ compensation claims is a losing battle.
So now let’s look at how much these claims cost you.
The Direct And Indirect Costs Of Claims
There are two kinds of workers’ compensation costs: direct and indirect. Direct costs are easy to track and analyze. The direct cost for most businesses is workers’ compensation premiums. A business pays a premium for workers’ compensation insurance, and the insurer pays for the benefits injured workers are entitled to under state law. Benefits include medical care, disability payments, rehabilitation, and death benefits. Additionally, legal fees can be covered by the insurer. Injured workers receive disability benefits for a portion (usually about two-thirds) of their lost wages while they’re unable to work. Workers receiving disability payments are not supposed to be paid wages by their employers.
Compared to direct costs, indirect costs are typically more difficult to determine and quantify. However, indirect costs can still be significant even when they are not easy to spot. Indirect costs can exceed direct costs in many workplace injuries. The following are seven types of indirect costs that a single workers’ compensation can produce.
The Administrative Costs
A workers’ compensation claim has the most immediate impact on your business by adding workload to your supervisory and administrative staff. Injuries at work require immediate attention. The employee has to be transported to a clinic or hospital for urgent care, provided with a claim form, and have the form completed and submitted by your insurance company. To ensure that the worker’s recovery proceeds smoothly, your staff will need to communicate with colleagues at your company as well as the worker’s health care provider. Employees who are cleared to return to work with restrictions, such as lifting no more than five pounds, may need to look for alternative jobs. As all business owners know, time is money. As a result, these tasks can take a lot of time and effort.
Increased Payroll Costs
Nearly a third of American workers who sustained non-fatal workplace injuries missed at least one day of work last year, according to the Bureau of Labor Statistics. Someone else must perform the duties of the injured employee. Depending on the situation, either a temporary worker can be hired or existing workers can be asked to perform the worker’s job, possibly with overtime pay. A long-term absence from work may require you to hire and train a new employee. Each of these options is costly.
Insurance Costs are Higher
Workers’ compensation insurance claims increase your insurance costs because they change your experience. The experience modifier is a mathematical factor that affects your insurance premium.
In addition to your current policy term, your rating modifier reflects how you perform against the loss experience of other businesses in your industry over the past three years. Numbers may be greater than, less than, or equal to one. You can receive a credit on your workers’ compensation premium if your loss experience is better than average for your industry. This also applies the other way around. An increase in losses will result in a debit from your premium.
Morale and Productivity at Work
Accidents at work have the potential to lower employee morale and increase absenteeism. Minor incidents can disrupt your business and negatively impact your productivity. After an accident, it may be necessary to stop work or delay it until damaged equipment is repaired or replaced. Worker injuries may cause fear and anger, particularly if they believe you are not concerned about their well-being or the accident. Injured employees who are out on disability may also be resentful of having to pick up the slack.
The Extra Scrutiny of Your Insurer
Your insurance company may also try to scrutinize your business because of workers’ comp claims. Insurance companies monitor their customers’ claims experience and pay attention to claim patterns that occur frequently. To determine whether there was a safety lapse on the part of the employer, they will analyze the circumstances of the accidents that triggered the claims. Your insurer may conduct an on-site workers’ comp inspection if it suspects safety is an issue at your workplace. During an inspection, your insurer is likely to list corrective measures you need to take to maintain your coverage. You might be required by your insurer to install guards on equipment, improve housekeeping, or educate your workers about the dangers of handling hazardous materials.
OSHA Inspection and Fines
An OSHA investigation may be initiated after a serious workplace injury. OSHA is more likely to investigate your workplace if employees complain about hazards. OSHA may inspect your business on-site or over the phone depending on the circumstances. OSHA may fine your business $13,653 per day if an on-site inspection reveals serious violations of its standards.
Reputational Damage
Damage to your business’ reputation is another effect of workers’ compensation claims. Social media has made it possible to share information about workplace incidents quickly. Suddenly, your business might be viewed as a risky business. Injury stories can discourage prospective employees from working for your company. Your company can lose customers, clients, investors, suppliers, etc. Because of these problems.
Prevention Is The Key To Avoiding Accidents
Workplace safety programs can help you rein in the direct and indirect costs of workers’ comp claims. You can save money by preventing accidents before they happen, improving employee morale, and lowering costs of insurance by preventing injuries before they happen. Be proactive if you don’t yet have a plan.
Businesses and self-employed contractors might want to consider getting a policy that protects their business if they get hurt at work instead of skipping workers’ compensation protection. Get in touch with an insurer today, PEOPayGo is a great option.
As a Professional Employee Organization (PEO), P.E.O.PayGo can help you get workers comp, bundle payroll, and HR, and perform all the headache functions of a small business, all while saving your time and money. Let our Instaquote do all the work, we don’t need much information and it takes 2 minutes. Our software does all the work for you.
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