Getting to Know Insurance – Part Three

By Geof White  

Worker’s Compensation Insurance

Why do we need it?

Workers Compensation Insurance protects the employee as well as the employer. If an employee gets injured on the job then the employers Worker’s Comp policy will cover the medical expenses. Therefore it is protecting the employee from an employer that can’t or won’t pay for the right medical treatment. As an employer, your protection comes from the employee that is injured at work and retains a lawyer to sue. That lawsuit will be against the Insurance Company that wrote the workers comp policy and not the business owner (unless negligence is involved). Yes, that is the major reason this insurance costs so much; large lawsuits against insurers.

Regulation

Workers Comp is regulated by state. Some state regulations are very different than other states. (Florida especially for a number of reasons). So talk to your insurance agent for particulars in your state and any state you work in.

Class Codes & State Rates

Worker’s Comp is mandatory if you have employees. (Florida is different again) Each state sets the rate for each class code (Every occupation has a particular class code) and insurance companies can choose to charge above that rate or discount below that rate. The rates will vary from state to state also. The rate is called renumeration. The renumeration here in Wisconsin for a residential window cleaner is around $24. So for every $100 paid to an employee, I pay $24 to my Workers Comp Insurer. The rate for an office employee is $0.28 (I guess window cleaning is a little more dangerous that sitting at a desk?) Worker’s Comp is always figured by gross payroll.

Experience Mod

There is another factor that can affect your rate called your Experience Mod. The experience mod is a factor that is generated by the state for your company. The factors include the number of previous claims, size of claims, actual payouts, number of employees, years with no claims, years in business and I’m sure a few I am unaware of. Your Experience mod will raise or lower your rate. An Exp Mod of 1 will equal the state rate. An Exp Mod of .80 will give you the 80% of the state rate. An Exp Mod of 1.15 will give you a rate 15% more than state rate. If you are a small company or a new company the state may not even give you an Experience Mod due to lack of history. I have never seen an Exp Mod lower than .65 but I have seen Experience Mods over 1.60. So watch your claims. A small company with many claims will have a high mod and to get a Mod lower than 1 you had better have many, many claim free years. Claims do drop off after 3 years, so that one injury that happened 4 years ago will not affect your Mod this year.

The State Pool

Most window cleaning companies start off in the state pool. Workers Comp insurers will not beat down your door for business, especially the new or small businesses. The State Pool is a group of Workers Comp Insurers that by law “Have to insure you.” The State Pool is heavily regulated therefore the insurers can not offer any rate other than the state rate coupled with your Experience Mod. Is the Pool a bad thing? No- that is where companies start. Many companies stay there forever. If you do pay over $10,000 annually in Workers Comp it may not be a bad idea to shop companies outside of the Pool that may offer a discounted rate. If you are under that $10,000 mark you may as well stay where you are in the Pool.

Working Out of State

Here’s a tip NEVER WORK OUT OF STATE WITHOUT TELLING YOUR INSURANCE AGENT! (I know it’s yelling when you bold, but it’s an absolute must!!) Say you primarily work in Wisconsin and you do a job in Michigan. No big deal, they are reciprocal states (meaning regulations between the states have been previously worked out and your coverage just continues as it was before). If you are from Wisconsin and you go do a job in Florida without telling your agent, you just asked for penalty fines, any contractor’s license will be revoked and the company that hired you may have grounds not to pay you (I saw that happen once with a hurricane cleanup- It was ugly). Again, Florida is very different- they require you get a policy in Florida at their rates which are usually higher for out of state contractors. There many states that are not reciprocal states. Typically states that border each other are reciprocal states. Don’t want to get into trouble? It’s a real easy solution, let your agent know you are working out of state and he or she will take care of keeping you properly insured.

The (Dreaded) Audit

Oh No- My Workers Comp Insurer wants to do an audit! Don’t panic. Most states require all Workers Comp Insurers to audit EVERY policy holder. Get used to it, It will happen every year right after renewal. They will want documentation to show your gross payroll for the policy period. If you overpaid they will give it back and if you underpaid then you are getting another workers comp bill.

Sole Proprietors, LLC’s, and Corporations

Most states will not allow you to carry Workers comp on yourself if you are a sole proprietor – even if you have employees (you are required to have it on the employees though). If you are an officer in a Corporation you can include or exclude yourself in the policy- same for an LLC. If you exclude yourself (which is very common) on your workers comp policy and you get injured then you are not covered by that policy. Sometimes is more cost effective to get supplemental insurance that covers work related injuries instead of paying the high workers comp rates on yourself.

Minimum Premium Policy

Say you are a sole proprietor therefore carrying no workers comp policy on yourself and you land a job that requires a workers comp policy to be on the jobsite. You can get a minimum premium policy or often called a dummy policy. This policy will cost you around $1,000 and covers absolutely nothing. What it does say is that you have a workers comp policy that covers no one. So if you get injured on that jobsite you have no coverage and you can not sue them.

My advice:

Talk to an insurance agent (or several) that deals with Workers Comp insurance. The rules are different from state to state. It will be your most expensive insurance and most likely one of your higher business expenses if you have a few employees. A good agent will make sure your codes are correct, your payroll estimates are correct, and obviously help you find the right insurance company.

You also want to keep your claims to a minimum. Even one small claim can cost you for years (because it can affect your experience mod thus raising your rate). Safety programs are a great way to keep your employees aware of safe operating procedures.

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