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WORKERS’
COMPENSATION INSIDER
SECRETS
PRESENTED BY: YOUNG KIM & DOUG MEGILL
TODAY’S AGENDA
Overview of Workers’ Comp Overall statistics
What is Workers’ Comp?
Who is covered? Employees vs Independent Contractors
Employees of Independent Contractors
Statutory Employers
How is Workers’ Comp Premium determined?
Workers’ Comp applications & class codes
Experience Mod Rate What it is
Know to calculate it? Know to lower it!
What to do if you have a claim?
How to handle an audit?
WORKERS’ COMPENSATION
STATISTICS
WORKERS’ COMPENSATION
STATISTICS
WORKERS’ COMPENSATION
STATISTICS
CAUSES OF WORKPLACE
DEATHS
Top 10 Occupations With The Largest Number Of Injuries or Illnesses, 2007
1. Laborers (non-construction)
2. Truck Drivers (heavy)
3. Nursing Aides, orderlies
4. Construction Laborers
5. Truck Drivers, light
6. Retail Salespersons
7. Janitors & Cleaners
8. Carpenters
9. Maintenance & Repair Workers (general)
10. Registered Nurses
Source: Department of Labor, Bureau of Labor Statistics
DID YOU KNOW?
MORE THAN 20% OF ALL FATAL INJURIES IN 2013
WERE EMPLOYED IN CONSTRUCTION JOBS*
*According to Bureau of Labor Statistics, out of 3929 private sector worker fatalities, 796 were in
construction
294
82 71
21
0
50
100
150
200
250
300
350
Top 4 Causes Of Fatalaties in Construction
Number of Fatalaties
Type Of Fatality in Construction % of Total Mix
Falls 36.9%
Struck By Objects 10.3%
Electrocutions 8.9%
Caught-in/between 2.6%
Workers’ Comp Statistics
WHAT IS WORKERS’ COMP?
The Workers’ Compensation & Employers Liability Policy was developed by the National Council of Compensation Insurance, Inc. (NCCI)
It is the standard coverage form used to provide insurance for an employer and covers the insured’s statutory liability under the various states workers compensation laws or acts
Employers Liability (WC) covers the insured employer against its common law tort liability for employee injuries that fall outside the scope of the state laws or acts that are separate and distinguished from the liability imposed by worker compensation laws
Injuries must arise from and be related to the injured worker’s job duties
The policy also covers related costs for disease or death that occurs as the result of the accident
When was the system of Workers Compensation first established?
In which US state was Workers
Compensation first established?
2050 B.C. – City of Ur (Ancient
Mesopotamia) provided monetary
compensation for specific injuries
to workers’ body parts including
fractures
In Wisconsin, 1911
What are the 3 basic eligibility requirements for Workers’ Compensation benefits?
1. The person or company you are working for must carry workers’ compensation insurance or be legally required to do so
2. You must be an employee or person of that company
3. Your illness or injury must be work related
What Does Workers’ Comp Really
Mean?
Workers’ Compensation is a mandatory coverage which provides 100% medical benefits as well as statutory loss of wages for the employee who suffers a job related injury or disease. Employers are required by the various states to provide this coverage for their employees:
In Virginia, Statutory requirements for employers are 3 or more workers
In DC, Statutory requirement is 1 or more employee
In MD, one or more (same as DC)
What are the penalties in VA & MD for
not carrying Workers Compensation
coverage?
MARYLAND:
Not to exceed $10K
VIRGINIA:
$250 per day for non-compliance
AND
Subject to Maximum Civil Penalty up to
$50k
WHO IS COVERED?
GUIDELINES FOR CONTRACTORS & SUBCONTRACTORSNeither the Workers’ Compensation Commission nor the State Corporation Commission can provide legal advice on individual contractor/subcontractor situations. The status of an independent contractor, a subcontractor, and an employee must be determined based upon the facts of each case. The following are general guidelines only.
1. Employee vs. Independent Contractors
2. Independent contractors are NOT automatically eligible for Workers’ Compensation
3. Employees of contractors are eligible for Workers’ Compensation
4. Statutory employers
EMPLOYEE vs.
INDEPENDENT CONTRACTORS
The Workers’ Compensation Act defines an employee as:
A person under written or implied contract of hire “except one whose employment is not in the usual course of the trade, business, occupation and profession of the employer.”
In distinguishing between an employee & an independent contractor, some important considerations are as follows:
The right to hire
The power to dismiss
The obligation to pay wages
The power of control
An employee arrives to work and is unable to enter the premises at the start of the shift. He forgot his key and doesn’t want to clock in late. If he is late one more time, he will be terminated. The employee decides to climb over the chain link fence to avoid lateness. As he is climbing the fence, he loses his footing, falls about 5-ft and lands on his right knee causing a significant contusion. He tells his employer he was injured and would like to see a doctor. What is the correct employer response?
A. The employee should not be compensated for this claim. He was late and used poor judgment in climbing the fence
B. The employee was on the employer’s premises and is therefore eligible for workers’ compensation benefits
C. The employee should be disciplined for not remembering his key. This resulted in a disruption in the workplace, lateness and causing the employer to report an avoidable injury
Correct Answer:
B and possibly C depending on your approach to employee
discipline. The claim is still compensable whether or not
injury could have been avoided by the employee exercising
better judgment.
INDEPENDENT CONTRACTORS
Independent contractors are not automatically eligible for workers’ compensation
An independent contractor who is generally a sole proprietor or partner, is not entitled to workers’ compensation benefits unless:
A formal election of coverage has been made; or
A written agreement has been reached among the independent contractor, the employer, and the insurance carrier that coverage will be provided
EMPLOYEES OF CONTRACTORS &
STATUTORY EMPLOYERS
When a sole proprietor, partnership, or
corporation contracts to perform work or provide
services that are part of the same trade,
business, or occupation of the employer, a
contractor/subcontractor relationship is
established. The contractor becomes the
statutory employer of the employees of the
subcontractor
Who is covered under Workers’ Compensation ?
Trainee & Apprentice
Cash Labor
Insured Subcontractor
Uninsured subcontractor
Officers
HOW IS WORKERS’
COMPENSATION COST
DETERMINED?
The cost of average Workers’ Compensation policy is based on payroll or remuneration.
Remuneration is pay or salary, typically monetarypayment for services rendered as an employee. It can include: Commission
Compensation
Executive Compensation
Deferred Compensation
Employee Stock Options
Fringe Benefits
Salary
Wage
WORKERS’ COMPENSATION
CLASS CODES
How is the Workers’ Compensation premium determined?
Employees are “classed” into the particular rating groups based on the type of work they do which determines the rate that the employer will pay
Ex: A person manufacturing dynamite will have a much higher rate than the person answering the phone in the office
Where are class codes found?
They are found in the NCCI Scope’s manual.
How to classify employees?
General class codes encompass a large pool of different types of workers. It is important to find the best possible class code for the particular class of workers
Can I classify employees to a category of my choosing to reduce my rate?
DO NOT misclassify employees! All Workers’ Compensation policies are “audited” at the end of the policy time and audit time. Insurance companies are very notorious for moving employees out of a particular rating group and placing them in a much higher class.
PS: All rates are based on a “per hundred” of remuneration
Volt is a Clerical Employee of Electro Electric Services, Inc. He is paid $30,000 a year to balance the books and provide clerical support. The insurance carrier rate is .18 per hundred of payroll. Thus the charge for Volt will be:
HOW IS WORKERS’
COMPENSATION COST
DETERMINED?
In the same office as Volt is Zapper. Zapper is a “Supervisor” and runs around all over the area checking on job sites but will “occasionally” fill in as an electrician. The rates for executive supervisor are $3.41 and the rates for Electrician are $5.19. Zapper is paid $72,000/yr. What class code do you use?
Although most businesses will want to put Zapper in the lower
class (Supervisor), Workers’ Compensation companies will
automatically put him into the Electrician class (higher class)
unless Zapper can break down his compensation on the books by
job classification, time and wages attributable to those
classifications.Workers’ Compensation class codes are 4 digits long.
8810 is clerical
5606 for Executive Supervisor
5190 Electricial Wiring, etc.
EXPERIENCE MOD
(Actuarial Science Version)
EXPERIENCE MOD
(Actuarial Science Version)
EXPERIENCE MOD(Simple Approach)
Claims = Experience Mod =
Claims = Experience Mod =
WHAT IS Experience
Modification Rate?
Workers Compensation rating factor
KEY Component in the development of the final WC
premium
Regulated by NCCI (some states have own rating
bureau). All states have some form of experience
rating plan filed
Mandatory that the experience modification is
applied on WC premium
Ultimately controlled BY the insured
It is a reward or punishment based on loss history
WORKERS’ COMPENSATION
FORMULA
Rate (class code)
X Payroll (per $100)
X Schedule rating (if available in the state)
X Experience Modification
= Standard Premium.
Also subtract premium discount, add state assessments &
expense constant to get the final ANNUAL PREMIUM
ELECTRO ELERCTRIC
SERVICES, INC.
Name Annual Payroll Description of Work Class Code
Mr. Volt $30,000 Clerical 8110
Mr. Zapper $50,000 Supervising & Sales 5606
Mr. Zapper $20,000 Electrical Wiring 5190
Field workers $1,150,000 Electrical Wiring 5190
Total Clerical Payroll (8110): $30,000
Total Supervisor Payroll (5606): $50,000
Total Electrical Wiring Payroll (5190): $1,200,000
Claim Free for over 3 years
ELECTRO ELECTRIC
SERVICES, INC. Scenario 1
Class Code Rate Payroll Premium
8810 (Clerical) 0.18 30,000 54
5606 (Supervisor) 3.41 50,000 1,705
5190 (Electrical Wiring) 5.19 1,200,000 62,280
Total Class Premium 64,039
Schedule Rating 1.0
Experience Mod 0.84
Standard Premium $ 53,793
Over $300K in claims since 2011
Class Code Rate Payroll Premium
8810 (Clerical) 0.18 30,000 54
5606 (Supervisor) 3.41 50,000 1,705
5190 (Electrical Wiring) 5.19 1,200,000 62,280
Total Class Premium 64,039
Schedule Rating 1.0
Experience Mod 1.60
Standard Premium $ 102,462
ELECTRO ELECTRIC
SERVICES, INC. Scenario 2
EXPERIENCE MOD
(Actuarial Science Version)
EXPERIENCE MOD
(Actuarial Science Version)
Which employer is most likely to have a higher
experience modification rate?
A. Employer with TEN $5,000 claim (Total $50,000)
B. Employer with ONE $50,000 claim (Total $50,000)
Correct answer B. Based on the
experience modification formula, the first
employer would have a SIGNIFICANTLY
higher Experience Mod Factor.
Ms. Hot Wire from Electro Electric Services
Inc has been in the Electrical industry for
over 15 years. She is a field manager
doing electrical wiring. Unfortunately, she
fell off a ladder and broke her knee.
In which of those 2 cases will Electro
Electric Services Inc end up with a
LOWER experience modification rate?
A. Case A: Employer has a Return To Work program providing Ms. Hot Wire a position in the office to pick up the phone
B. Case B: Employer has NO Return To Work program leaving Ms. Hot Wire at home until she is fully capable of doing what she did before the incident.
Correct Answer:
A. There would be less indemnity and less reserve on the
claim
WHAT TO DO IF YOU HAVE A
CLAIM?
Seek immediate medical attention for the
injured employee
Notify the insurance carrier as soon as
practical – within 24 hours for severe claims
Cooperate with the carrier and provide all
necessary information
Use carrier panel providers whenever possible
to help mitigate claim costs
WORKERS’ COMPENSATION
AUDIT
All Workers’ Compensation policies are issued with “estimated” exposures
Insurance carrier retains the right to audit your books at the end of each policy term to develop the correct policy exposure
Audits generally take place approximately 30 days after expiration
Audit can be done by paper aka “Paper Audit” or in person aka “Physical Audit”
Carriers will in some cases send the audits out to a fee company or independent firm
Have your books ready and available for review
941s
VA EEOC report
1099 tax records during the term
Have certificates of insurance on file for all
payments to subcontractors during the policy
period
Have complete job descriptions for all employees
Cooperate with the carrier
Ask for assistance from your agent
HOW TO PREPARE FOR A
WORKERS’ COMPENSATION
AUDIT?
THANK YOU
WE APPRECIATE YOUR ATTENDANCE & PARTICIPATION
If you have any questions at all, please don’t hesitate to contact McLean Insurance:
703.790.5770
