As a business owner you know that workers compensation insurance is a necessary evil. You realize that you must have it to comply with state law and protect your employees but may not appreciate the unpredictable nature of how to pay for your NH workers compensation policy with your small business insurance.
To understand the rating of a workers compensation policy, you must first have a clear understanding of what such a policy does and how it interacts with small business insurance. In summary, workers compensation can compensate an employee for job-related injuries and diseases regardless of fault. Benefits include specified medical expenses, disability (lost wages), death benefits and rehabilitation. This benefit, in theory, prevents the employee from suing the employer for such injuries or diseases.
How are NH Workers Compensation Rates Determined?
The cost of workers comp depends on a number of small business insurance factors including the size of employer's payroll, the amount of risk each employee typically performs as part of his or her job function and your company's claim history (known as an experience mod.)
Payroll and Employee Classification:
The size of an employer's payroll is a fact that will be verified by an audit at the end of the policy term, while the classification of employees is determined in most states, not by an insurance company, but by The National Council on Compensation Insurance (NCCI).
The third rating factor is the experience modification factor (aka MOD). Your company's experience MOD is a numeric representation of your company's claim experience. MODs are also determined by NCCI and are based on how your business compares with others in your industry. An average MOD is 1.0. If your business has less severe or fewer incidents than average to your industry, your policy will be credited. If higher than average, your premium will be more expensive.
For a general example, an administrative assistant who works at a desk will be classed in a less expensive rate than an employee who operates heavy machinery. If, however, an office has ergonomic issues and frequent carpal tunnel syndrome claims, this business would pay more than the "average" office.
Determining risk can be a complicated question for both the employer and insurance company. Because of this, each year the company will perform a workers comp audit to ensure that you, your business and its employees are properly rated and insured with your small business insurance. It is critical to keep accurate financial records as an audit is not optional. When you obtain coverage, you are also agreeing to the audit process. As a result of an audit, you may owe additional premium, receive a refund or adapt your rates for the following year.
What if my Payroll Changes?
When you first purchase workers compensation insurance with your small business insurance, the premium is determined on what you expect your payroll to be in the coming year. This can be tricky, especially if business takes off and you need to add to payroll. It is suggested that if you make significant changes to your payroll or hire employees who may be in a different classification than what you anticipated that you contact your insurance agent to adjust your workers compensation policy. The information will be discovered at audit, but changing your policy mid-term will allow you to pay the premium increase in installments if necessary. If you choose to wait until audit and it is discovered that there is additional money due, there is typically not a pay plan option available.
This process does work both ways so if your payroll decreases significantly, assuming that you are not paying a minimum premium, then your business will receive a refund following an audit.
What if my Business is Being Charged for Independent Contractors?
This is one of the most common issues we at HPM Insurance see as an issue during an audit. Unfortunately the Department of Labor (DOL) determines who is an employee and who is a subcontractor, not you. There are a number of determining factors outlined by the DOL. For more information on these factors, check out a prior HPM blog titled The Difference Between a Subcontractor and an Employee in NH. If someone who does work for you can not meet the 7 criteria as outlined by the DOL, then he or she would be considered an employee and hence subject to being added to your company's work comp policy.
Is it Worth Shopping my NH Workers Compensation Insurance?
Though the rates are set by the state, insurance companies can file a deviation with the Insurance Department to charge more or less for the workers compensation premium of particular classes of business. If an insurance company has had a good experience with a particular class of business, the company will want to credit similar accounts to attract more profitable business. The opposite may be true for a company experiencing a high frequency of work comp claims in a particular class and may want to discourage attracting or keeping such business by increasing premium. The point is that just because the insurance company has seen a trend in losses throughout your business's particular industry does not mean your business has seen the same. You want to ensure the insurance company has the particulars of what your business has done beyond the average business within your class in regards to safety training or other programs you may have to reduce the likelihood of a workers comp claim.
Workers Compensation can be a challenge, but with the help of HPM Insurance, you can get the help you need to protect your employees, have a more consistent cash flow and grow your business.