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
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
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,
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
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.
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.”
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
Steps to Controlling Worker's Comp Costs
Take advantage of free on-site safety surveys and training from insurance
companies, government bodies or educational entities.
Get employees involved by posting a workplace safety suggestion box.
Encourage them to discuss potential hazards with their co-workers.
prepared when an injury takes place. Have forms ready. Interview witnesses
and be prepared to make them available in court should you suspect a
Communicate clearly and often with medical providers, the insurance carrier
and the injured employee about the status of any claim.
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.
Work with carriers in designing a “return to work” program that keeps
injured workers from lapsing into a disability mindset.
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.
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.
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?
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
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
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
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
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
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’
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
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.