Even if you operate in a relatively “safe” industry, worker compensation claims represent a serious threat to business continuity. A single mismanaged claim could leave your business reeling. While reasonable claims may not have as significant of an effect, they can still drive up your premiums and cut into profit margins.
The good news is that you can insulate your business from excessive claims using a simple yet effective worker compensation cost reduction strategy. This 4-ingredient recipe is easy to follow and implement.
IntegrityFirst has developed this winning recipe by tapping into our wealth of industry expertise and know-how. We specialize in helping clients like you reach their true potential by reducing risk and decreasing turnover. Minimizing turnover and reducing the risks associated with mis-hires will provide much-needed workforce stability while simultaneously insulating your business from civil liability, excessive hiring costs, and other avoidable expenses.
Whether worker compensation has been a perennial pain point for your business or you simply want to take a proactive approach, our secret recipe is for you. Join us as we reveal how you can achieve total worker compensation cost reduction.
Must-Know Worker Comp Facts
Before stepping into the worker compensation cost reduction kitchen, let’s cover some must-know worker comp facts. We’ll start with broad strokes and then drill down so that you can better understand the challenges worker comp claims can pose to your business.
According to the U.S. Bureau of Labor Statistics, the 2020 nonfatal work injury and illness rate was 2.7 per 100 employees. This figure includes all private industries. While the injury and illness rate was 2.7 per 100, only 1.7 injuries resulted in:
- Days away from work
- Job restrictions
Realistically, your business can expect to experience approximately 1.7 injuries per year per 100 employees. If you operate in an office environment, this claim rate could be even lower.
While that may not seem like a major concern, you must consider the average claim cost. According to the National Safety Council (NSC), the combined average cost for all worker comp claims in 2019–2020 was approximately $41,353.
Although your worker comp insurance should cover the majority of such claims, you will still be responsible for paying your premium and deductible. In a worst-case scenario, you could also find yourself covering legal fees and other expenses.
Unfortunately, there are also hidden costs of excessive or frivolous workers’ comp claims. Think of workers’ comp claims much like car insurance claims — even if your claim is comparable to a small fender bender, the simple fact that you filed a claim will increase your rates for the next three years. This means that you will pay more in workers’ comp insurance for every dollar of wages paid to employees.
As you will see from our recipe for worker compensation cost reduction, your response to claims plays a major role in keeping costs down. However, this is just one of four elements that contribute to your risk of incurring frivolous or excessive workers’ comp claims.
In order to fully insulate your business against these claims, you must leverage all four strategies. Besides better management of claims, these strategies include investing in safety training, optimizing general management practices, and modernizing your hiring processes to eliminate unfit candidates from the applicant pool. Cumulatively, these tactics will help you proactively prevent many claims from ever even being filed.
Factors That Impact Your Premium Costs
The secret to our worker compensation cost reduction recipe is that it systematically addresses the factors that can influence premium costs and the frequency of workers’ comp claims.
There are factors, however, that you have virtually no control over. These factors include the industry you operate in and the state where your business is located. Your total payroll also impacts worker comp premium costs and represents a factor out of your control.
However, you can influence your costs by:
- Managing claims effectively
- Monitoring your experience modifier
- Establishing strong relationships with employees
- Implementing injury prevention initiatives
- Not hiring high-risk individuals
Monitoring and optimizing your experience modifier is one of the most challenging aspects of managing your worker comp premiums. The experience modifier is a factor that is calculated by the National Council of Compensation Insurance (NCCI) or your state. This factor gauges your company’s threshold of worker comp losses over time.
The industry average experience modifier is 1.0. However, your company’s experience modifier can be higher or lower than 1.0, depending on your claims history. Every 0.1-point drop in your experience modifier will translate to approximately 10% savings on premiums. Conversely, each 0.1 increase will raise your premiums by about 10%.
The question then becomes, what influences your mod rate? While several factors can cause your rate to fluctuate, claim frequency and costs are undoubtedly the two most influential.
If you have several workers’ comp claims, or even a single claim that is excessively costly, your mod rate could increase significantly. Taking a proactive approach by screening candidates and weeding out those that have a history of substance abuse, lying in the workplace, or theft will go a long way in preventing fraudulent claims from ever being filed.
Additionally, you must create and maintain strong relationships with employees, as those that hate their bosses have a higher propensity of filing or exaggerating a claim, even if they do not fall into the “high risk” category.
The Worker Compensation Cost Reduction Recipe
If you want to achieve significant or total worker compensation cost reduction, you need to leverage our winning recipe. Our recipe was carefully crafted based on our eye for finding talent and our understanding of the employer-employee relationship.
Our recipe involves instituting processes in these 4 areas of your business:
Gallup recently published its 2022 State of the Global Workplace report. In this landmark report, Gallup researchers revealed some truly astounding — and concerning — findings. By the numbers, the Gallup report discovered that:
- Only 33% of employees are “thriving”
- Just 21% of employees are engaged at work
- 44% of employees experienced high stress levels the previous workday
Additionally, Gallup researchers stated that global workers have adopted mantras like “watching the clock tick” and “work is just a paycheck.”
Based on the figures above, we can surmise that nearly four out of five employees are not engaged or actively disengaged at work. Employee disengagement doesn’t only lead to attrition, but it can contribute to worker comp claims as well.
For instance, let’s say that you operate in the manufacturing sector, and one of your newer employees seems to be “checked out” of work. This individual is constantly on their phone in between tasks and is doing the bare minimum to get by. They also frequently forget to wear the required safety equipment when on the factory floor. Naturally, they are less productive than your more attentive and engaged employees.
One day, this employee shows up to work and is particularly disengaged because the previous day was unusually stressful. Shortly after starting their shift, they begin operating a piece of equipment. However, since they are inattentive, they inadvertently get one of their fingers pinched in the machinery and suffer a serious injury that will result in missed work time.
While this example oversimplifies the problem of employee disengagement, it does convey how unattentive employees may be more prone to workplace injury. Employee disengagement and dissatisfaction present other issues to your company as well.
Numerous factors can prompt an employee’s dissolution from their role at the company. For instance, they may be struggling with financial problems. Or perhaps they just had a new baby and are missing out on a good night’s sleep. Maybe they feel as though their hard work goes unnoticed.
Regardless of the cause, this dissolution can manifest as anger and disdain for their boss. When this happens, an employee’s ire is usually directed at front-line supervisors, not CEOs. However, the latter can also be the subject of an employee’s frustration, especially within smaller organizations.
Employees who intensely dislike their bosses may be more likely to sue and exaggerate worker comp claims. Disdain for employers is more prevalent than you might expect. According to the Society for Human Resource Management, 84% of American employees blame “poorly trained” managers for creating unnecessary stress and work.
The question is, what can you do about this? The answer is to proactively work to nurture positive relationships between managers and line-level staff.
When staff members know that they are appreciated, they will have better morale and stay more engaged. You should also consider training or upskilling your front-line supervisors to be more empathetic. If you have effective front-line leaders in place, your staff will experience much less friction in the workplace.
As a result, they may be more pragmatic should they suffer a workplace injury. Instead of feeling like it’s their opportunity for retaliation against the company, they will probably just want to be fairly compensated for their injury or hardship.
- Safety Training and Equipment
The next ingredient in our recipe for worker compensation cost reduction involves investing in safety training and equipment so that your team has the tools they need to be successful.
Safety courses and training classes teach your staff valuable skills that they can use to guard against workplace accidents. The exact scope of these classes will vary depending on your industry.
Admittedly, safety training and equipment represents perhaps the most imperfect ingredient in our cost reduction recipe. This is true for two reasons.
First, creating and maintaining a safety training program can be costly. The good news is that you can keep costs to a minimum by purchasing third-party resources instead of creating them in-house.
Second, and more importantly, safety training courses still rely on people to follow through with what they learn, and at times, people can be unreliable.
Given that fact, you must also invest in the right equipment. By purchasing quality equipment for your business, you can drastically reduce the likelihood of a workplace injury like a slip and fall.
The exact equipment to purchase varies by industry, but a few common examples include:
- Safety railing
- Anti-slip flooring
- Wet floor signs
- Personal protective equipment (PPE)
After you have invested in this equipment, create clear policies outlining when your staff has to use it. By doing so, you will improve compliance and insulate your business from liability should someone get injured while violating company policy.
Immersive virtual reality safety training appears to be especially effective at improving safety in the workplace. According to a 2022 empirical comparison of safety practices, virtual reality safety training increased participants’ ability to select the right PPE by over 14%. Researchers also found that participants improved their ability to identify hazardous scenarios by 28.95%. The training was particularly effective at helping novice workers follow safety procedures.
When using this approach, make sure that you regularly provide employees with regular training. Ideally, you should administer some form of training weekly, if not every day. Daily training can be something as simple as sending out refresher emails.
Throughout the year, you should address all relevant safety topics multiple times. This will keep best practices top of mind for your staff and help you drive down worker compensation claim costs.
- Claims Management
Are you hesitant to engage with employees who have worker comp claims for fear of exacerbating the situation? Worried that reaching out to the employee may make things worse, not better? Do you actively distance yourself from a claimant until their dispute is settled?
When an employee initially files a worker comp claim, your first instinct might be to avoid them and let the situation play out. It’s understandable why you might believe this is the right approach, as you’re an organizational leader who is responsible for pursuing what’s in the best interests of the company.
However, that does not mean that you should avoid staff members who have active worker comp claims.
Using the avoidance approach can create a great deal of friction between you and the injured staff member. When you treat workers and claimants as if they’ve done something wrong, you can make them feel isolated.
According to a cross-sectional national study, 23% of employees that have filed a workers’ comp claim classified their experience as “negative or neutral.” Of the various factors that influenced employees’ claims experiences, employer behaviors toward claimants played a major role.
Instead of avoiding an employee who has filed a claim, proactively engage with them. Install a process for dealing with claims in a manner that is respectful, legal, and empathetic.
In the aforementioned study, researchers concluded that there is a strong “positive association” between a worker’s experience during the claims process and their timetable to return to work. In light of this, you should focus on optimizing the claims experience and treating workers fairly in order to improve their ability to return to work.
Have you had someone just barely on the job two weeks, a month, or six months turn an incident into a major worker comp claim, only to find out this isn’t the first time they have done this to their employer?
If you have had the unfortunate opportunity to experience this firsthand, you know just how frustrating it can be. While you may have thought that you properly vetted the new employee, you inadvertently hired your next claim.
That brings us to the final and most important ingredient in our worker compensation cost reduction recipe: the people. You can implement all of the preventive and risk mitigation measures in existence and still experience high claim rates if your hiring practices are ineffective.
Installing the right tools in your hiring process, such as Integrity Testing, can reduce these incidents by 57% on average. Some organizations also experienced a return on investment in excess of 700% by implementing these testing protocols. When you combine Integrity Testing with our other strategies, you may even be able to completely eliminate worker compensation claims.
Integrity Testing is a service offered by IntegrityFirst. This risk mitigation tool can help you streamline the hiring process by weeding out risky or unfit candidates. From there, your human resources personnel can focus their energy on vetting and screening only the best applicants.
Integrity Testing serves one key purpose: to ensure that your hiring process has access to a qualified and thoroughly screened talent pool. This testing reveals which applicants engaged in counterproductive behaviors that could drag down productivity, hurt company culture, and increase the frequency of worker compensation claims.
Integrity Testing from IntegrityFirst measures four counterproductive behaviors, which include the following:
- Substance abuse
- Lying, faking, or embellishment
In terms of worker compensation cost reduction, lying and faking and substance abuse are core areas of concern. Employees who engage in substance abuse may be more prone to experience a workplace accident. This is especially true if they show up for work while under the influence of drugs or alcohol.
Prospective employees who exhibit signs of embellishment, lying, or faking are more likely to file a false worker compensation claim or exaggerate a legitimate one. This type of behavior can drive up the costs of claims and endanger business continuity.
Even one or two costly claims could significantly raise your premiums and hurt your company’s bottom line.
Now that you have the roadmap to worker compensation cost reduction, it’s time to implement these proven strategies. We recommend starting from the ground up by modernizing the way you source talent and screen applicants. In order to accomplish meaningful hiring improvements, you need the right partner in place.
IntegrityFirst is that partner. The IntegrityFirst testing solution can remove friction from the talent sourcing process and help you hire faster, smarter, and more efficiently. The tests provide you with meaningful insight that will guide hiring decisions and help you remove high-risk individuals from the candidate pool. If you’re ready to rein in your unruly worker compensation costs, protect your business, and make your organization more competitive, it is time to connect with IntegrityFirst. Discover a better way to hire today.