In California Workers' Compensation is mandatory for an organization with even a single employee. This type of coverage protects workers' who are injured on the job and protects employers from being sued by injured workers.
Policies are standardized and include coverage for injuries, occupational diseases, medical treatment, rehabilitation, lost wages, death, and liability insurance for lawsuits.
Although policies are standardized, rates can vary widely. The cost of a Workers' Compensation policy is determined by taking the rate and multiplying it by the covered payroll (per hundred dollars). Other factors that impact premium are a company's Experience Modification, industry and claims history.
Since Workers' Compensation rates are based on covered payroll there are a few strategies that can assist employers in keeping costs as low as possible.
How to Save on Workers' Compensation
- Pay-as-you-go - Many Workers' Compensation insurance companies charge an initial deposit and then schedule payments based on estimated payroll. This strategy can cause cash flow issues and surprises at a year-end policy audit. Using a pay-as-you-go strategy you only pay based on your actual payroll each month. Bespoke's integrated payroll provides a direct link to specific Workers' Compensation companies to facilitate this seamlessly.
- Pre-tax Employee Deductions - using Section 125 of the IRS code employers can provide group insurance benefits and medical spending accounts to employees with employee contributions deducted on a pre-tax basis. This has many advantages for both the employee and employer. In relation to Workers' Compensation it actually lowers costs since Workers' Compensation costs are based on the taxable payroll. This can be done by offering a variety of Employee Benefits, including: medical, dental, vision, voluntary benefits, flexible spending accounts, health savings accounts, and much more.
- Excluding Owners - while not allowed by all insurance companies, business owners should determine if they are eligible to be excluded from a Workers' Compensation policy. By excluding their wages they can dramatically lower their costs and in many cases use a small portion of that savings to enroll in stand-alone medical, disability and life policies that would provide more comprehensive coverage.