How to Reduce Workers' Compensation Costs

All business owners and managers are looking for ways to reduce their expenses. Workers' compensation insurance is often among the largest expense items for many businesses.

Data from the U.S. Department of Labor's Bureau of Labor Statistics shows the average business spends $28.87 per hour, per employee. This figure includes salary, health insurance, vacation time, workers' compensation coverage, etc. The highest percentage of the employee expense, 69.7% ($20.13), is allocated to the salary; 30.3% ($8.74) is spent on benefits; and 1.6% ($0.47) is spent on workers' compensation coverage. In  other words, if a business employs 10 workers, it is spending $4.70 per hour on workers' comp insurance. That is $37.60 per eight-hour work day; $188 per week; and $9,776 per year. And that's for a relatively small business. For a business with 100 employees, you're looking at around $100,000 a year in workers' comp premiums.

So, what are some ways in which employers can reduce their workers' compensation premiums?

Some businesses in higher risk industries such as construction are always going to pay higher workers' comp premiums, simply because of the elevated risk of injury in those professions. However, there are some procedures an employer can implement that can help to reduce workers' compensation costs:

* Develop a solid safety program that includes regular safety inspections, assigning a safety coordinator and conducting staff training programs. The program could help to reduce on-the-job injuries and therefore cut your workers' comp premiums.
* If you pay employees for overtime, you may only need to report the regular wages. The lower payroll figure could reduce your workers' comp premiums.
* Look into back-to-work programs that help employees to recover quickly from their injuries and get back to their job. The quicker an employee can return to work, the fewer workers' compensation dollar are spent for the injured employee.
* Is there a pattern of claims among employees? Are there specific locations that are posing a greater hazard? Conduct an internal investigation to determine if there are hazards that may be corrected; or if there may be some fraud occurring at the workplace. Cutting down on these risks will help to slice your comp premiums; and it will make you a much more active and informed risk manager.

Additional factors that could lead to reduced workers' compensation premiums include:

* Effective new-hire selection procedures
* Strict and consistent medical referral procedures
* Make sure all employees' job classifications are correct

If your workers' compensation premiums are putting too much of a dent in your company's bottom line, it may also be a good idea to consult with a risk management expert; or possibly even bring a risk manager onto the staff.