Updated: Feb 15, 2019
Workers compensation insurance is mandatory in California. If your business employs workers and you are not a qualified self-insured, you are obligated by law to purchase a workers compensation policy. While workers compensation coverage is a necessary expense, there are steps you can take to lower your premium. Professional Dynamics (PDI) has been a trusted cost containment solutions provider for Workers Compensation Payers and public entities for over 34 years. Below we'll outline some of they key ways we can help your company lower your premium. For your efforts to be successful, you must first understand how your premium is calculated, so lets look at that first.
California workman's comp rates are set and regulated by the Workers’ Compensation Rating Bureau of California. High-risk occupations have higher premiums than lower-risk occupations. Employers who establish a good safety record will be rewarded with lower premiums than others in their industry.
Every occupation is assigned a risk classification, and each classification is associated with a specific dollar amount—or Base Rate—based on how risky that occupation is.
An employer’s workman's comp insurance premium is determined by its class code, number of employees, total payroll, type of jobs performed, and the employer’s history of accidents and workers’ compensation claims.
Workers compensation premiums are calculated based on the following formula obtained from the Workers’ Compensation Rating Bureau of California:
BASE RATE X (PAYROLL / 100) X Experience Modifier = PREMIUM
There are two critical variables in this equation: the rate and the experience modifier.
Understanding Your Rate
The rating of workers compensation insurance is based on a classification system. Employers in the same industry that perform similar functions are assigned the same classification.
Here are a few sample 2017 base rates (rate per $100 of employer payroll) for select California class codes:
0042 Landscaping: $7.713632
Machine Shop: $3.705027
Each classification is assigned a rate. Workers compensation rates reflect occupational risk, the likelihood that workers will be injured on the job. Some occupations are riskier than others. Roofing work is riskier than office work. Thus, the rate for roofing work is considerably higher than the rate for clerical work.
Premium Based on $100 of Payroll
A major element in workers compensation rating is your payroll. Your payroll is divided by 100, and the result is multiplied by the rate. For example, suppose your payroll is $500,000 and your rate is $.15. Your payroll ($500,000) divided by 100 is $5,000. The rate ($.15) multiplied by $5,000 is $750.
Understanding Your Modifier
The experience modifier is also a critical part of the calculation. It is a numeric representation of your company's loss history compared to the average for your industry. If your loss history is average, your modifier should be 1.00.
A loss history that is better than average will result in a modifier that is less than 1.00. Likewise, your modifier will be greater than 1.00 if your loss history is worse than average. Depending on your state, your modifier may be calculated by the NCCI or your state rating bureau.
In the rating formula outlined above, you can see that your modifier is a multiplier of the premium. A modifier that is less than 1.00 will reduce your premium, while a modifier greater than 1.00 will increase it. Suppose your modifier is .90, your payroll is $500,000, and your rate is $.15. Your final premium is $675.
$.15 X ($500,000 / 100) X .90 = $675
Now suppose your modifier is 1.1. Again, your payroll is $500,000, and your rate is $.15. This time your final premium is $825.
$.15 X ($500,000 / 100) X 1.1 = $825
How can PDI can help Lower Your Modifier to Lower Your Premium?
Your business has little control over the loss experience of your industry or the rates assigned to your classifications. Nevertheless, PDI can work with you to reduce your premiums by taking steps to lower your modifier. Here are 5 steps:
1. Make Safety a First Priority.
By maintaining a safe workplace, both on and off your premises, you can help reduce worker injuries. If possible, the budget for an outside safety evaluation and implement the changes suggested. Mandate employee safety training. Because your modifier is a multiple in the premium calculation equation, a small reduction may result in significant savings.
The best opportunity to medically impact a claim and reduce days away from work is at the most critical stage, the beginning. The PDI Nurse Advice & Injury Reporting line allows employees, including those in a dispersed workforce, immediate access to a Registered Nurse to discuss the nature of their injury. This not only provides the employee an instant advocate and clinical advice to treat their injury it also provides the employer with:
Decreased lag time in injury reporting
One point of contact at the time of injury
creates a streamlined process for both the employee and the employer
Reduces OSHA recordable and reportable claims by providing self care advice when applicable
A return-to-work program that is implemented via the PDI Nurse Case Management system can help retain valuable workers while reducing the cost of workers compensation claims. Our case management philosophy focuses on the management and coordination of care through efficient use of resources. Cost containment, while essential, is not the only goal. Quality and continuity of care, coupled with the assurance of appropriate and timely intervention, are crucial elements for recovery and promoting a stay at work/return to work philosophy. By approaching the case with these goals, our nurses facilitate treatment options and services focused on the identified health needs. This approach decreases the fragmentation and duplication of treatment, while ensuring the right treatment, at the right time, with the right provider. Click here to read a White-Paper on how early intervention can significantly reduced costs for a large public entity.
Implementing an ergonomic program will not only reduce injuries and time away from work, but also improve employee morale and productivity. Professional Dynamics, Inc. offers a variety of ergonomic services for employers to choose from and customize to their specific needs.Group training: Approximately 1.5 hours, tailored to the industry and scope of work of the audience.Individual ergonomic evaluation: As a preventative measure or in treatment of a workers’ compensation injury, PDI will provide an onsite workspace evaluation with a full report including recommendations, risk factors, and workplace photos.
Reducing costs by reducing opioid use is a complex process. PDI brings a proven solution, RxFactor, to your claims that decreases costs while still delivering the highest quality of support and care for drug management. Some states sponsor programs to improve safety in return for a reduction in your workers' compensation premium. For instance, a few states provide a premium reduction to employers that participate in a Drug-Free Workplace Program. PDI can outline and advise you about the programs that are available in your state.
3 Additional ways to reduce your premiums:
Many businesses are improperly classified on their workers' compensation policies. Classification errors can be costly. For example, suppose your executive assistant is classified as a carpenter since she is employed by your construction company.
The workers' compensation rate for a carpenter will be much higher than the rate for a clerical worker. If you think your firm has been assigned the wrong classifications, ask your insurance agent or broker to review them. You can also request a classification inspection from the NCCI or your state rating bureau.
Workers compensation premiums are based on projections of your payroll for the current policy period. If the projections are too high, your premium will be higher than it should be. Your premium will be adjusted when your policy is audited, but the audit may not take place until months after your policy has expired. You don't need to wait. Ask your insurer to adjust your payrolls now.
Let us show you how you we can reduce your Workers Compensation costs.