For landscapers all over the United States, the premium of workers’ compensation insurance is a large expense that’s often required by state laws. In other words, there’s not much you can do about it. Or is there?
Understand your state’s laws
Not every state requires businesses to provide workers’ comp. In fact, most states only require businesses to provide it when they have more than three employees.
Even when not required by law, offering workers’ comp is still beneficial for landscapers to avoid prosecution from injured employees who waive their rights to file damage lawsuits against the employer when receiving workers’ comp benefits.
The premium for workers’ compensation insurance is designed to provide sufficient funds to not only pay for benefits to the injured employees, but also to operate the system that delivers those benefits. It is a pre-funded insurance system, which means that premiums are determined before the policies are issued, and that premiums are intended to meet all future claim payments made under those policies.
Nearly 40 states have designated a non-profit statistical organization called the National Council on Compensation Insurance (NCCI) to advise their insurance regulators on the appropriate premium rates. Insurance carriers within those states are required to use the state-mandated rates, along with the roughly 600 different classifications for employees.
For landscapers dealing with workers’ compensation insurance in one of these 40 states, not to mention many of the remaining states, I recommend the following five steps to avoid overpayment.
Use correct employee classifications
Each of the 600 classification codes for employees has a specific rate. Ask your insurance agent for copies of the official descriptions for those used in your policy—and verify that they are correctly assigned.
Many states allow a business to use multiple classification codes; your employees who fulfill clerical duties will have a substantially lower rate than those out on jobsites. For landscapers, most states use code 0042 for landscape installation duties and the code 9102 for lawn maintenance duties. It is common for lawn maintenance employees to pay a double rate when misclassified in the installation code.
Use correct payroll numbers
The rates on workers’ compensation policies are multiplied by the premium basis, which is commonly referred to as payroll, but the correct term is actually “remuneration”. There is an important difference between these terms because remuneration excludes some pay received by employees; this needs to be removed from the premium basis on your policy.
Severance pay is not included along with overtime wages above the regular amount of pay.
Corporate officers can be excluded from coverage, and their payroll should also be completely removed. If not excluded, partners and sole proprietors often have a fixed amount of payroll and other executive officers will have a maximum amount. Find out the specifics in your state laws.
Be proactive with claims
The best long-term approach to saving on workers’ compensation premiums is to minimize the number of employee injuries, along with the costs associated with each injury.
Most states utilize an experience rating technique that allows premiums to be adjusted higher or lower based on claims history. To take advantage of these systems and lower future premiums, it is important to partner with an insurance carrier that efficiently handles claims and controls claim costs.
Report claims immediately to your carrier to minimize the employee’s time off work. Offer light-duty jobs to injured employees to minimize their loss of wages. Use techniques to prevent injuries—and make safety a priority for your business operations.
Obtain available premium credits
In some states, there are discounts of 5% and greater for having a drug-free workplace. There are also standard discounts available for utilizing a written safety program.
In states without these standard discounts, many use “schedule rating”, which allows an underwriter to apply premium discounts for factors such as safety practices and management experience that are not otherwise reflected in the claims experience. Find out what credits are available in your state and seek to obtain the associated premium discounts.
Analyze other premium discounts
To allow insurance carriers to compete on price when rates are pre-determined, many states allow specific forms of premium discounts based on claims.
Landscapers with larger premiums may be offered dividend plans, which allow funds as high as 50% of the premium to be returned at the expiration of their policies for no employee injuries or good claims results.
Retrospective rating plans allow businesses to receive discounts for lower claims, but claims within a policy period can adjust the premium amounts and result in higher premiums. It is important to ask questions and understand what premium discount options are available to your landscaping business.
Drew Roberts is an insurance agent who specializes in providing business insurance to Florida landscapers. For more information, visit BearWise Landscapers.