Summary
Stop overpaying on workers' comp! Learn 4 smart, administrative strategies—from Pay-As-You-Go to audit-proof tracking—to secure lower workers' compensation rates.
Managing workers’ compensation insurance is a critical but often frustrating task for any business owner. It’s an essential (and often required) layer of protection for your employees and your company, but the premiums can be a major expense, especially if you’re stuck in a cycle of unpredictable audits and surprise bills.
The key to controlling these costs isn’t just about avoiding claims. It’s about employing smart administrative practices. Here are four effective strategies your business can use to maintain lower workers’ comp rates and reduce your exposure to costly headaches.
Embrace Pay-As-You-Go Workers’ Compensation
For many businesses (especially those with seasonal workers or fluctuating payroll), the old way of paying workers’ comp premiums is a drain. Traditional plans rely on estimating your annual payroll at the start of the policy year, which often results in:
- Cash Flow Disruption: You either pay too much upfront (tying up capital) or pay too little and face a massive, unexpected premium bill at the end of the year.
- Audit Exposure: If your estimates are off, you risk significant adjustments during a final audit.
Pay-As-You-Go (PayGo) workers’ comp solves this. By integrating your payroll directly with your insurance carrier, your premium payments are calculated and remitted each time you run payroll. This means:
- Accurate Payments: Premiums are based on actual, up-to-the-minute payroll data, ensuring you are never over- or under-insured.
- Reduced Audit Stress: Since you’ve been paying accurately all year, the final audit is often a formality, drastically reducing your exposure to painful financial surprises.
Learn more about how Pay-As-You-Go works.
Diligently Track Subcontractors and Vendors
One of the quickest ways to increase your workers’ comp audit bill is by failing to properly document the classification and coverage of people who are not your employees. When an auditor sees a large payment to a subcontractor or vendor, they are legally obligated to assume that those payments were for uncovered payroll unless you can prove otherwise.
To prevent your insurance company from adding these payments to your total payroll calculation and hiking your premium, you have to maintain excellent records:
- Collect Certificates of Insurance (COIs): Always require vendors and subcontractors to provide a current COI showing that they have their own workers’ comp coverage.
- Maintain Records: Keep all vendor contracts, invoices, and the corresponding COIs on file for the entire policy period and beyond.
Partner with a Trusted Payroll Provider
Workers’ compensation audits require accurate and timely payroll records. If your records are disorganized or incomplete, the audit process becomes stressful, drawn-out, and almost always results in higher costs.
Working with a reliable payroll partner, like GTM Payroll & HR, ensures you have:
- Accurate Classification: Your employees are correctly mapped to their specific class codes from day one.
- Ready Reports: You have instant access to all necessary payroll reports, organized precisely as auditors need them, allowing for fast, efficient audit completion.
- Expert Support: A trusted partner can handle the required reporting and assist with any auditor inquiries, taking the administrative burden off your plate.
This foundational accuracy and support help you sail through the audit process and avoid costly assumptions made by auditors due to incomplete paperwork.
Monitor and Verify Your Class Codes
Your workers’ comp premium is largely determined by the class codes assigned to your business and its employees. These codes reflect the level of risk associated with the work being performed (for example, an office worker is less risky than a construction worker).
It’s common for businesses to have outdated or incorrect codes, leading to inflated premiums. You should:
- Review Codes Annually: Always check the class codes used by your insurer at renewal time to ensure they accurately reflect your current business operations.
- Request Adjustments: If you notice a change in your operations (e.g., shifting from manufacturing to mostly warehousing), work with your agent to ensure the codes are updated to reflect the lower-risk exposure, potentially leading to lower rates.
By taking a proactive, administrative approach – particularly by leveraging accurate payroll reporting methods like PayGo – your business can avoid unnecessary audit surprises and secure the lowest possible workers’ compensation rates. For help with all things workers’ compensation, call us today at 518-373-4111 or request a complimentary consultation.
