5 Strategies to Reduce the Cost of Workers’ Compensation Insurance

eCapital Corp

Last Modified : Jan 23, 2024

Fact-checked by: Bruce Sayer

Workers’ Compensation Insurance (WCI) premiums can be the second largest expense after payroll for staffing companies. If not managed well, the heavy burden of WCI costs can devastate a business. In some cases, staffing companies that do not control their workers’ compensation losses or fail to properly screen job candidates are forced out of business. On the other hand, staffing companies with efficient WCI management strategies can maintain the proper coverage while keeping premiums down.

Dale Busbee is an industry expert from eCapital with over 25 years of executive-level leadership and sales experience in the staffing industry. Dale sat with David Schek, the president at Work Comp Staffing Solutions, to probe for answers to one of the industry’s most significant cost barriers – how to reduce the cost of worker’s compensation insurance?

David has 15 years of experience owning and managing a 70-office staffing network and 31 years of experience identifying worker compensation solutions for staffing offices. As a result, he is very familiar with the challenges related to WCI costs and the most efficient strategies to reduce them.

In this article, we have condensed and focused on the discussion points between these two industry leaders. The following captures David’s recommendations as the most effective approach to reducing the costs of worker’s compensation insurance.

5 strategies for cost-effective workers’ compensation insurance

#1. Stay on top of your job classification codes

Busbee: With constantly changing workforces, a common challenge among staffing companies is correctly recording job classifications and administering accurate payroll reporting. How important is it for staffing companies to maintain accurate records considering the time and effort required to be current and correct?

Schek: Mismanaged job classifications and payroll reporting can significantly and negatively affect the cost of workers’ compensation insurance coverage. The National Council on Compensation Insurance (NCCI) has nearly 800 unique class codes for each type of work function. Each class code carries specific risks associated with the job that affects insurance premiums. Accurate and diligent record-keeping is essential to avoid costly penalties.

Your WCI carrier will conduct initial and annual audits to verify that employees are correctly classified, and payroll is appropriately estimated. These audits have a direct impact on your premiums. Regularly update data to ensure your employees are classified under the correct job code. If the audit reveals that the policy needs to correct class codes, the cost of premiums may be adjusted. Further, if significant corrections are required, it may result in a policy credit or penalties. Keep accurate and updated records to ensure these audits work in your favor.

#2. Apply risk management strategies to reduce injury rates

Busbee: Because agencies send their workers to different companies and job sites, managing their employees’ working environments is difficult, if not impossible.  How can staffing companies manage their employees and clients to mitigate risk and lower the cost of insurance premiums?

Schek: To optimize insurance costs, focus on minimizing employee injury risks and reducing the number of insurance claims:

• Vet and screen temporary employees properly with drug testing, background checks, and prior injury history.
• Refuse to place employees in hazardous work environments.
• Test and verify employees’ skill sets before they are placed with an employer. Improperly or inadequately trained employees are much more prone to injury.
• Verify employees have proper safety equipment and protective gear or that the client will provide the necessary gear to employees.
• Visit clients’ work sites regularly to ensure safe working environments and that misclassifications are not occurring.

#3. Fine-tune your coverage and costs with a pay-as-you-go option

Busbee:  What are the benefits of “pay-as-you-go” programs?

Schek: With a traditional workers’ compensation plan (i.e., state funds and private carrier), the premiums are based on your estimated annual payroll and your number of employees for the year. However, staffing agencies typically have a fluid pool of employees that change regularly to meet customers’ needs. Pay-as-you-go workers’ compensation insurance is an option with flexible premiums that change throughout the year based on updates to your employment records (professional employer organizations (PEOs) and employers of record (EORs) comp options usually have the best “pay as you go” programs). With this option, you can obtain the same or similar type of workers’ compensation coverage available in a traditional plan but with flexible premiums that automatically adjust based on weekly, monthly, or quarterly payroll information. Enrolling in this type of workers’ compensation program helps agencies scale their coverage and costs to fit their actual needs.

#4. Create an anti-fraud process

Busbee: According to research, workers’ comp fraud costs the US about $5-7 billion annually. In California alone, over 5,700 suspected fraudulent workers’ compensation claims were filed in 2019. Insurance companies have estimated that they save approximately $1 billion due to anti-fraud measures against worker’s comp but still suffer losses between 10-$30B yearly. How can staffing companies mitigate fraud to reduce the cost of premiums?

Schek: It is critical to have a process for weeding out potential fraudulent insurance claims:

• Have a workers’ compensation claims coordinator who actively and regularly follows up with any employee off work.
• Train placement office staff on proper and timely reporting of workers’ compensation claims.
• Have a return-to-work program to place employees who do get injured back on the payroll as soon as possible. A good solution is to place these workers with a different client who can accommodate work restrictions.

#5. Work with an insurance broker

Busbee: Is there a cost advantage for staffing companies to use an insurance agent/broker rather than going directly to an insurance provider?

Schek: The short answer is YES! But, more importantly, know that WCI carriers usually only deal with a licensed agent/broker. When shopping for a reputable insurance agent/broker, look for one fully accredited and experienced in the staffing industry. These professionals can quote your company with multiple workers’ compensation insurance companies to ensure the most effective approach to maximize coverage and reduce costs.

• While there are over seven hundred PEOs in the country, only about ten have significant experience with staffing companies. Of these, only half a dozen or fewer will underwrite light and heavy industrial codes.
• There are about fifty to one hundred EORs in the country. Some operate illegally as they lack special permission from their carriers to be an EOR. An experienced agent/ broker will know which EORs are the best fit for a staffing company.

By working with a trusted agent/broker, your staffing company can concentrate on your core business – sales, recruiting, and increasing profitability.

Almost all agents/brokers are paid a referral fee (or a % of comp premium) by the insurance carrier your staffing company selects. No matter how many quotes you receive, they should all be at no cost to you! Use this to your advantage and spread your net as wide as needed to obtain comparative costs and service proposals.

Conclusion

After payroll burden, the cost of WCI can be the next most significant operating expense for staffing companies. Finding ways to reduce risk while keeping premiums cost-effective is critical for your business to succeed.

Operating costs and risks increase significantly when staffing companies fail to have policies and processes, plus a trusted agent/broker to manage WCI. Consider these five strategies for your operation. Each strategy will bring you closer to your WCI goal of greater coverage at the lowest possible cost.

Our thanks to David Schek for sharing his expertise.

About David Schek

David Schek is the President at Work Comp Staffing Solutions. With over 30 years of experience in the staffing industry, he helps companies develop worker compensation programs and unique solutions to suit their specific needs.

From 1990 to 2005, David built a staffing network of 75 offices throughout the US achieving 25M in sales/yr. and employing over 25K employees a year. He has experience in staffing niches including IT, light Industrial, medical, skilled industrial, and hospitality.

Working with PEO’s, private insurance companies, State funds, EOR’s, and captives, David will provide free Work Comp quotes to identify the lowest comp rates for his clients. He holds an MBA and a MS from The George Washington University, and a BA, History from the University of Maryland.

About Dale Busbee

Dale Busbee is the SVP, Business Development Officer for the Commercial Finance Division of eCapital. As a former staffing company owner with over 25 years of executive-level leadership and sales experience across commercial lending, banking, retail, recruiting and staffing, Dale applies his expertise to provide working capital facilities through Accounts Receivable Financing, Payroll Funding, and Asset Based Lending, exclusively for small and mid-size businesses across the US and Canada.

His wealth of knowledge and industry expertise help current and prospective staffing business owners on a wide range of issues including financing, payroll and taxes, sales and marketing, software support, growth/ expansion initiatives, and exit strategies. Dale holds a BBA, Finance from Lamar University.

eCapital Corp

eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment refinancing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.