Workers’ Comp Insurance: 8 Ways to Trim Costs

Editor's Note: This workers’ comp insurance article originally appeared in Premier Flooring Retailer, a trade magazine published by the World Floor Covering Association. Reprinted with permission, this piece contains helpful tips for all construction businesses, not just the flooring industry.

Workers’ compensation insurance in the construction trades is expensive. Flooring businesses, for example, see a greater than average number of debilitating back and knee injuries, as well as knife mishaps.

Though you have limited control over your workers’ comp insurance rates, you can take steps to reduce the risk of workplace injuries and workers’ comp claims. Here are eight tips:

1. Classify your employees correctly

Workers’ compensation laws vary by state, so it’s vital to become familiar with the requirements for your location(s). Some business owners wrongly assume that workers’ comp applies only for W-2 employees and not 1099 contractors. In some places, that’s not accurate, and you can end up with surprise expenses if you’ve incorrectly classified workers.

Pay special attention to subcontractors. If one of your 1099 contractors has a crew of subs, talk with a workers’ comp specialist to understand how your state views those subs. Do you need to provide workers’ comp for them, too? In some states, misclassification can result in loss of exclusive remedy protection.

2. Preserve your “exclusive remedy” protection

State workers’ comp insurance plans typically include an “exclusive remedy” provision. This means if an employee gets injured on the job, the only avenue for getting reimbursement is to file a workers’ compensation claim.

Without this exclusive remedy protection, workers injured on the job can sue your business, and you lose control over the claim. A sympathetic jury may award punitive damages, reimbursement for pain and suffering, and other amounts that can sink your company.

Do research to learn if there are scenarios in your state where you can lose exclusive remedy protection, and if there are, find out what you need to do to avoid this risk.

3. Document each employee’s job duties and work location

For each worker, you need to clearly define roles:

• Where do they work?
• What duties do they perform?
• Where are they stationed within your workplace? Where is their chair?

Depending on how you answer these questions, the costs for workers’ compensation can vary widely. In smaller businesses, employees may wear multiple hats. Find out how your state calculates the premium if someone spends two days a week on cleaning carpets and three days as a flooring installer. In many cases, states choose the highest-rated class code, even though the employee is in a lower risk setting two days a week.

Sometimes, a simple change such as moving a desk from a warehouse location into the administrative office can reduce workers’ comp insurance costs. A specialist can help you identify savings opportunities like this.

4. Keep pristine employment records

If an workers’ comp insurer audits your business, you want detailed workforce records at your fingertips. If the employee roster does not match what the insurance company has on file, you can end up paying increased premiums and/or other penalties.

Detailed records on both W-2 employees and 1099 contractors can also help in other ways. For example, suppose a 1099 flooring contractor works for both your business and three others around town. In the event of a cumulative trauma claim (repetitive motion injury, etc.), who pays the workers’ compensation claim?

Here's another example: Let’s say you have a new hire who previously worked for your competitor. If there’s a cumulative trauma claim, who pays that?

Having a written job application, detailed interview notes, a written job description signed by the new hire, reference checks, and a background check on file can help you determine if there’s another party to share a workers’ comp claim. Without this detailed information, you can end up “buying” (hiring) a claim.

5. Prepare a formal safety plan

To reduce potential for workplace injuries, have you created a formal safety plan that covers all on-the-job risks? You can divide the plan into sections for showroom, office, warehouse, transportation, jobsites, and any other category that applies in your situation. Each area of your business has different risks. For example, you may want a “no horseplay” rule in your warehouse or guidelines on how to store materials to prevent them from falling on someone.

Invite your employees to help brainstorm risks and how to mitigate them. Your safety plan is a living document that you update regularly as new risks come to light.

6. Improve worker safety through regular safety training

Proper body mechanics can prevent back, knee, and other injuries. Team members need regular training on these topics and more:

• Knee and back injury prevention, including safe lifting
• Tool safety and proper techniques for using the equipment
• Proper vehicle loading and unloading
• Safe handling for chemicals (including temperature, humidity, and ventilation requirements, protective gear, and so forth)
• Vehicle safety, including formal policies on mobile phone usage while driving
• Heat injury prevention (or in colder climates, hypothermia education)

7. Evaluate “path of travel” prior to each job

Understanding the jobsite beforehand can help prevent injuries. For example, does your flooring installer have a straight-line route from the truck into the building and then to the space where the work will take place? Are there stairs, tight corners, or elevators? A roll of carpet can weigh 600 pounds, and the various equipment for projects can be heavy and bulky. Walk the site before your team brings in the material to identify navigation challenges and solutions for enhanced safety.

8. Implement a lockout tagout procedure for equipment

Many construction businesses have a tool corral where team members check out the equipment they need for their projects. Working with malfunctioning tools can lead to injuries, so it’s important to establish a formal procedure for regularly inspecting equipment to ensure it is working properly. If it’s not, you want to tag it, disable it, and remove it from circulation until it’s repaired. This prevents a worker from accidentally taking broken equipment to a jobsite.

By taking these steps, you can reduce workers’ comp insurance costs and protect your business.