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Small Business

Don't Trip Up

Dealing with worker's
comp is a major headache
but attention to detail is
keeps premiums down

By Lawrence Bivins


There is much that is enjoyable about owning and running a small business, but dealing with workers’ compensation isn’t one of them.

Yet ignoring this glamourless issue invites exorbitant premiums and myriad hidden costs down the road. The good news: by taking the right steps early on, small firms can keep workers’ comp premiums, and the headaches associated with workplace accidents, under control.

Workers’ compensation claims are steadily falling from their peak a decade ago. For the fiscal year ending last June, there were 59,453 claims filed in North Carolina, according to the North Carolina Industrial Commission. The figure is down slightly from the 60,458 recorded the previous year and sharply below the 86,333 claims filed in 1995-96.

“That has a lot to do with changes in our workforce, but it also is because of more attention being placed on safety,” explains Buck Lattimore, chairman of the commission. Instances of contested claims are increasingly settled through mediation, he adds, another factor that has kept a lid on premiums.

But rising medical costs, especially prescription drug prices, continue to fuel premium hikes, Lattimore says. Medical expenses now comprise a 55-percent share of total workers’ comp claim costs, compared to 49 percent in 1993 and just 44 percent in 1983, according to nationwide data compiled by the National Council on Compensation Insurance (NCCI). And the news gets even worse for small businesses. Claim frequency, NCCI says, increases in inverse proportion to the size of payroll. Firms with payrolls of less than $250,000 have double the claim frequency of the largest corporations.

“Any small business needs to emphasize safety first and foremost,” says Lattimore, himself a former businessman. Investing time and energy upfront can yield considerable cost savings down the road, and help is not difficult to find. The Industrial Commission’s safety education section trains more than 30,000 employees and supervisors annually, offering practical, hands-on instruction for managing all types of workplace safety hazards. “For any size business, we can send experts in to conduct safety training and consult with companies on setting up rules,” says Lattimore. In return, companies get a discount on their premiums. Expertise is also available from the N.C. Department of Labor, the N.C. Industrial Extension Service and from many insurance carriers.

Dealing with the Human Factor

Human factors are the key to keeping workers’ comp issues under control, and it worthwhile for employers to go beyond the basic requirements of the law, according to Jeri Whitfield, a partner with the law firm of Smith Moore, LLP, in Greensboro. “Begin with making all employees aware of policies,” Whitfield says. Post a safety suggestion box to encourage employees to think about possible hazards, she adds.

For repetitive tasks and positions requiring lifting, get advice from a professional ergonomist. Consider automation and job rotation as potential solutions for high-risk assignments. Many injuries, Whitfield believes, stem simply from worker inexperience. “Train employees well on how to do their jobs,” she says.

Too many employers believe workers’ comp insurance policy relieves them of any concern about claims. That is anything but the case, according to Joe Sykes, president and CEO of Key Risk, a leading underwriter of workers’ comp insurance and provider of third-party administrative services. “If employers are to successfully control workers’ compensation losses, they must first understand what is causing their losses,” he explains. Only then can they effectively work with their insurance agent, broker or carrier to stanch the flow of more claims.

For those like Sykes who’ve spent years studying workers’ comp issues, keeping a lid on losses is not a mystery. “Libraries are filled with data about loss prevention and claims prevention,” he says. But knowledge won’t compensate for an employer who refuses to be proactive. “Success is a matter of deliberate implementation and consistent, effective delivery of loss-control services,” says Sykes, whose company is based in Greensboro.

Respond Quickly to Accidents

Still, even those workplaces with the most conscientious approach to safety can be the scene of an injury. At that point, employers should move quickly to attain the facts about precisely what happened — and why. “Have a form employees fill out for work related injuries,” advises attorney Whitfield, who is board certified in workers’ comp law. Discern, in writing, what steps might have been taken to avoid the injury.

Most important, interview all witnesses immediately. “Even if there were no witnesses to the incident, interview co-workers who might have been in the area,” she says. Witnesses are of great importance in the relatively small percentage of claims that reach the Industrial Commission. “From a legal standpoint, it’s hard to win a case strictly on cross-exam,” Whitfield says. Given that contested claims may appear before the commission some two years or so after the incident, when many recollections have faded and some employees have left, having contemporaneous written statements from eyewitnesses can help counter unfounded or downright fraudulent claims.

The nastier side of workers’ comp claims often begins with a legitimate injury, later evolving into litigation because of poor claims handling and inadequate communication. “The main problem, and the one that is the easiest to correct, involves communications,” says chairman Lattimore. When employers appear unconcerned about a worker’s mishap, they begin looking for someone outside the company who will listen. “That’s when they get a lawyer and it becomes a litigated case,” says Lattimore.

Communications must also take place between employers and their insurers. “Keep up with the case,” says Kristy Eubanks, president of Raleigh-based McLaurin Parking. That is especially true when fraud is suspected. Eubanks’ insurance company once went so far as to tail a claimant in order to successfully prove fraudulence. Establish a dialogue with healthcare providers, as well. “We’ve also gone to the doctor to hear exactly what they have to say,” says Eubanks, who teaches human resource management courses at Meredith College.

Take measures to get employees talking among themselves about safety, Eubanks says. In many instances, longtime personnel can help newer hires steer clear of hazards. “A good safety program will encourage these kinds of conversations,” urges Eubanks. Her company’s quarterly safety training helps maintain those informal communications, she says. In its case, McLaurin Parking’s insurance carrier provides free classes on-site. “It’s worth asking about,” Eubanks says.

The role of insurance carriers extends well beyond the mere issuance of claim checks. Case management services are also available to help put injured employees back to work as quickly as possible. “If you have a complex injury where someone is seeing multiple specialists, think about getting a rehabilitation specialist involved to coordinate treatment,” suggests Whitfield of Smith Moore. Such a person can interface between the employee, employer and physicians. “They’re also worthwhile in cases where an employee has a language barrier or communications problem and may not be able to understand the doctor.” When such circumstances arise, discuss concerns with the insurance adjuster, Whitfield says.

Getting Them Back to Work

One critical part of a sound workers’ comp program is a “return-to-work” feature. Getting an injured worker back to the worksite for even limited duties is preferable to keeping them at home all day. “Try to avoid the disability mindset,” Whitfield advises. Light duty work assignments are often the answer.

 “There’s a real advantage to someone understanding they have to spend eight hours a day working for eight hours pay — not two-thirds of pay for sitting at home,” Whitfield says. Assuming the physician approves the modified work assignment, the employee must comply. Should revised duties come at reduced pay, partial workers’ comp insurance benefits will cover the difference. “A return to productive work and life is beneficial to the employee, his family and his employers,” agrees Key Risk’s Sykes.

Data suggests that the longer an injured worker stays home, the less likely they are to ever return to work. “You have to be really diligent in getting people back to work,” says Eubanks, whose experiences at McLaurin Parking are consistent with such data. “Business owners are tempted to forget about the claim once the insurance company begins paying benefits,” she says. But the negligence returns to haunt them a few years later when premiums spike in the wake of poor case management. It’s not something every carrier will emphasize either, according to Eubanks. “Sometimes you have to stay after your insurance company to get people back to work,” she says.

For small firms, most of which are unable to self-insure their workers’ comp risk, working with the right insurance agent and carrier is crucial. “Look for an agent who has a local presence and knows the geography they work in,” says Ralph LaSpina, the Charlotte-based regional vice president of Montgomery Insurance. The company is a unit of Liberty Mutual Insurance Co., one of the largest workers’ comp underwriters in the state. The ideal agent should represent multiple A-rated carriers, he says. That helps clients zero in on the coverage options that best fit their unique needs. “You want an agent who takes a consultative approach,” LaSpina adds. “If an agent is not taking the time to get to know a client, he’s not getting the whole picture and there could be coverage gaps.” Agents who appear incurious on the front end about an employer’s operations won’t likely be of great assistance when problems occur later on. It’s also wise to seek agents and brokers who specialize in workers comp instead of those whose businesses spread across many different lines.

Picking the Best Policy

Policy design should consider the anticipated future needs of the insured, says Suzanne O’Keefe, an agent with Wachovia Insurance Services in Raleigh. “We look at the growth prospects of the business in the coming years, and tailor a policy that they can grow with.”

 One common pothole O’Keefe sees involves the often murky definition of an “employee.” Businesses that deploy contracted consultants and temporary help when orders are brisk should take care to verify such workers have their own insurance coverage. Failing to do so exposes companies to potential lawsuits. “That’s where a good agent can add value,” O’Keefe says.

Pay attention, as well, to how employees are classed, O’Keefe says. Failing to accurately classify employees and their job duties can lead to unnecessary premiums or, worse still, inadequate coverage. “It goes back to good communication between agents and clients,” says O’Keefe, who meets with her clients quarterly.

As with the purchase of any insurance, it is wise to research a carrier’s financial health. A.M. Best, Moody’s and Standard & Poors are the most prominent ratings services, though each maintains its own unique grading scale. O’Keefe and her colleagues at Wachovia Insurance, for example, won’t recommend companies possessing anything less than an A- rating from A.M. Best. “Financial strength is important,” O’Keefe says, “and you want to take the time to understand what the ratings actually mean.”

But ratings won’t reveal how knowledgeable a carrier is with a particular state’s workers’ comp laws, which vary widely. “The carrier’s knowledge of the statutes in a particular state plays a critical role,” says Joe Sykes of Key Risk. Consider an insurer’s relationship with state regulators, a good indicator of how well it understands North Carolina’s requirements.

A good carrier will also be familiar with the local provider community, Sykes adds, “in order to ensure that employees receive the best medical care available, with a focus on returning them to a productive life.”

Sykes adds two final words of advice to firms battling high workers’ comp premiums: be patient. Just as premiums don’t immediately reflect poor claims experience, employers won’t see the direct cost benefits of better safety and workers’ comp procedures right away. “It can take two to three years to turn things around,” he says.

But on the brighter side, attention to workers’ comp details can spin off bottom-line dividends outside the immediate realm of lower premiums. Small firms in particular fare poorly when workplace injuries sideline experienced employees, and there is a retention benefit when workers see visible signs that their employer is concerned about their safety and health.

“The most successful businesses care a great deal about their employees and understand their employees’ contributions and value to the organization,” Sykes says. “We can normally tell how well a business is run by how it manages its workers’ comp program.”


 Go Online For Free Help

Common sense can tell us a lot about workplace safety. But not every hazard is that obvious. Nor are the best ways to navigate them. That’s where a suite of online tools available through the Occupational Health and Safety Administration (OSHA) can come in handy. The education begins with a visit to

The tools cover all manner of safety and occupational practices for office as well as industrial workers. Some, like the proper way to hoist a five-gallon water jug, are useful in everyday tasks at home, too. While several of the site’s features are little more than well-illustrated web pages, others are interactive training modules that can be stored on workplace PCs for use by newly hired workers. Two packages — one on construction safety and the other oriented toward apparel workers — are available in Spanish.

OSHA began dabbling with online tools in the mid-1990s, according to David Ippolito, director of OSHA’s Office of Science and Technology Assessment in Washington, D.C. “We finally went online with them in a big way in early 2000, and their success really created its own momentum.” Several thousand users around the nation access the tools each month, he says.

The convenience and anonymity of the web-based tools account for much of their popularity, adds Ippolito. But with their easy-to-interpret diagrams, engaging graphics and sharp colors, the materials extract much of the tedium from a subject most see as deadly dry. “We’ve tried to take away some of the drudgery involved in learning about OSHA standards,” Ippolito says. The tools are also designed in a way that is less abstract than most printed manuals, bringing a real-world touch to which most users can easily relate. Materials on the well-indexed site are neatly organized, enabling small business owners to zero in on information relevant to their needs.

The site’s most impressive contents are its series of “Expert Advisors.” These are interactive tests taking five to ten minutes in which users respond to questions about the workplace and existing safety measures. Are stairwells adequately lit? Does the building contain asbestos? Are floors mopped during business hours? The program issues a thorough list of recommendations for corrective action, and an assortment of hyperlinks lead to more information on applicable OSHA requirements. “With the advisors, we’re really trying to bring users to the place they need to be,” Ippolito explains. “Some will quickly find out many of the regulations don’t even apply to them; others will learn they have a lot of work to do.”

Like the e-tools, OSHA’s compliance officers are available to help employers maintain safe workplaces, and shouldn’t be seen as heavy-handed safety police. “We are more than willing to help when someone reaches out,” Ippolito says.  —Lawrence Bivins


 Ten Steps to Controlling Worker's Comp Costs

1. Take advantage of free on-site safety surveys and training from insurance companies, government bodies or educational entities.

 2. Get employees involved by posting a workplace safety suggestion box. Encourage them to discuss potential hazards with their co-workers.

3. Be prepared when an injury takes place. Have forms ready. Interview witnesses and be prepared to make them available in court should you suspect a fraudulent claim.

4. Communicate clearly and often with medical providers, the insurance carrier and the injured employee about the status of any claim.

5. Use case managers to coordinate care when injuries require treatment by multiple specialists or when a language or communications barrier exists between the claimant and his physician.

6. Work with carriers in designing a “return to work” program that keeps injured workers from lapsing into a disability mindset.

7. Select an insurance agent or broker who shows eagerness to understand the operational details of your business. If possible, find one who specializes in workers’ compensation insurance.

8. Look for a financially healthy carrier with experience in North Carolina and in your community. Seek an insurer knowledgeable about the local medical community. It should also have a good relationship with state regulators.

9. Watch out for the policy details. Have all positions been accurately classified? How does the policy distinguish between company employees and other types of workers that may be on-site?

10. Be patient. Ongoing attention to good workplace safety practices will eventually spur noticeable premium savings. Know that the indirect benefits of a good program — better morale, lower employee turnover — bear fruit immediately.            —Lawrence Bivins



Q: I am getting ready to open my own business. Am I required by law to carry workers’ compensation insurance?

A: If you are a sole proprietorship, partnership, LLC, estate or trust, you are required by law to carry coverage once you have three employees who are regularly employed, in addition to the sole proprietor, partners, formulators of the LLC, executor of the estate, and bearer of the trust. It does not matter if these employees are full time, part time, regular seasonal or family members.

If you are incorporated, including all forms of corporations and those which have non-profit status, you are required by law to carry coverage once you have a total of three people in the corporation.

Everyone is included in the headcount, including corporate officers. An agricultural operation must carry coverage when there are ten or more regular, non-seasonal employees. Any other business entity not mentioned above would use the three or more employees rule.

Q: How much does it cost?

A: Rates vary for each specific type or classification of employment and are applied on a percentage basis per $100.00 of payroll.

Q: Do I have to be covered under my own policy?

A: As a corporate officer, sole proprietor or partner, you may choose to exempt yourself from coverage under your policy or elect to have yourself covered. In some situations, general contractors may make it a condition of employment for subcontractors to be covered. Subcontractors should discuss this with general contractors upon being hired.

Q: If I am a corporate officer, owner of a business, or partner, and I want to be covered under my workers’ compensation insurance policy, is my entire payroll taken into consideration for premium?

A: No. There are maximum amounts of payroll which can be taken into consideration for the setting of premium for sole proprietors, partners, formulators of an LLC and corporate officers. Contact your insurance agent for these amounts or the N.C. Rate Bureau at (919) 783-9790.

Q: I am a general contractor. Do I have to have workers’ compensation insurance?

A: Yes, if you have three or more employees.

Q: As a general contractor, am I responsible for covering my subcontractors?

A: If the subcontractor has one or two employees, there is liability on the part of the principal contractor for those employees but not that of the subcontractor. Waivers are no longer necessary since a change in state law declared that principal contractors are not responsible for subcontractors, only their one or two employees.

Any principal contractor, intermediate contractor, or subcontractor who sublets any contract to a subcontractor without first obtaining documentation that the subcontractor is in compliance with the N.C. Workers’ Compensation Act is liable for payment of compensation and other benefits if any employee of the subcontractor is injured or dies due to an accident arising out of and in the course of the performance of the work covered by such subcontract.

If the principal contractor, intermediate contractor, or subcontractor obtains proper documentation at the time of subletting the contract to a subcontractor, he will not be held liable to any of the subcontractor’s employees for compensation or other benefits.

The principal contractor, intermediate contractor, or subcontractor may require documentation of workers’ compensation coverage regardless of whether the subcontractor regularly employs fewer than three employees.

Q: I am a subcontractor. Do I have to carry coverage if I have no employees?

A: Not if the general contractor who hires you does not require coverage as a condition of employment of affording you the opportunity to work.

Q: Are there waivers of workers’ compensation coverage in North Carolina?

A: No. Waivers have not been valid in North Carolina since October 1995.

Q: I am an employer and file 1099s on a lot of people who work for me. What does this mean for workers’ compensation?

A: Just because you “1099” for IRS purposes does not mean that those people would be considered independent contractors under state law.

If you as the employer exercise “right to control” over those individuals by governing the manner and method in the way in which they do their job, then they may be considered employees under the N.C. Workers’ Compensation Act.

Q: What are the penalties for not carrying workers’ compensation insurance coverage?

A: Penalties range between $50 and $100 for each day of non-compliance until proper coverage is obtained.

Q: When does an injured employee become eligible for lost wage compensation?

A: No compensation is due for the first seven days of lost time unless the disability exceeds 21 days. Therefore, the first check will not include payment for days 1-7. Payment for those days will be made should the disability continue beyond 21 days.

Q: How often are compensation payments made?

A: Weekly.

Q: At what rate of pay?

A: 66 2/3% of the average weekly wage, up to a maximum wage of $704.

Q: How long is the employee eligible to receive lost-time weekly benefits?

A: Until the employee is able to return to work.

Courtesy of N.C. Industrial Commission



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Write to us at P.O. Box 2508, Raleigh, N.C. 27602
Call us at 919.836.1400 or fax us at 919.836.1425

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Last Modified: April 20, 2005
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