Workers Compensation

Why Workers Compensation?

Almost all employers are required to carry Workers’ Compensation insurance coverage, however, the specific details can vary by state. There is a number of issues related to workers’ compensation coverage that are either unknown to most or easily misunderstood. Here are five tips that will better help you manage your workers’ compensation insurance:

1. Underestimating payroll on your Workers’ Compensation Policy

At the end of your policy period a final audit may be conducted to capture your actual payroll for the policy term and determine your final premium. If your payroll is higher than estimated, you will owe an additional premium. If it is lower, you will receive a return premium.

Whether or not an audit is completed can be dependent on the size of your premium or the state you are located in. If your policy annual premium is less than $3,500, you may only get audited every three years. Most businesses don’t want to owe additional premium at audit time, so it is important to keep in mind that if your business grows, or you buy another location your payroll will grow as well, and it will likely be significantly higher than what you estimated for the year. It is wise to plan for an increase in premium due to higher payroll by setting money aside to pay the premium that will be due concluding the audit.

2. Workers’ Compensation Audits

Your workers’ compensation audit should be taken seriously, as it can result in a substantial premium increase if not addressed. If a business owner chooses not to respond to a workers’ compensation auditor, the auditor will process the audit with an automatic increase in payroll of 50%. The business owner will be billed for the additional premium based on the automatic payroll increase. It is in the policyholder’s best interest to be responsive if contacted by an auditor.

3. Officer Inclusion/Exclusion and Election of Coverage Form

Laws regarding covering or excluding officers for coverage on your Work Comp policy vary by state. You may be legally required to submit an Election of Coverage Form to the Insurance Bureau in your state. To ensure that your choice to include or exclude officers under your workers’ compensation policy is properly documented, please contact your insurance program representative. We assist our customers in completing any documentation accurately to help avoid surprise premiums due at audit. If the proper Election of Coverage Form is not submitted timely, it may impact the premium calculated upon audit, or coverage provided in the event of a loss.

4. Canceling Your Workers’ Compensation Policy Mid-term

As a general rule, a policyholder may choose to cancel his/her insurance policy at any time by giving written notice to his/her insurance agent. It is important to note that it is common practice in the insurance industry for a ‘short rate’ penalty fee to be assessed on policies that are canceled prior to the expiration date. This penalty fee is usually a sliding percentage that is based on how long the policy has been in force. For example, cancellation nine months into the policy inception would yield a lesser penalty than one canceled three months after inception.

Why do insurance companies impose the fee? Insurance companies issue a policy to cover a 12-month period and expect the policy to remain in-force the duration of those 12 months. It costs the insurance company money to quote and issue a policy and then cancel it a few months later, so they endeavor to recoup some of that expense. The NCCI (National Council on Compensation Insurance) also supports imposing the fee. They gather statistical data that helps set rates for each class code and state. In addition, they compile information in order to calculate experience modifications on individual policies. When a policy period changes (ie: canceled prior to the expiration date), it disrupts NCCI’s statistical calculations. The short rate penalty fee encourages policyholders to keep their policy in force for the full 12-month period.

5. What is an Experience Modification?

Once an owner has been in business a few years and reaches a certain workers’ compensation premium size (it depends on the state, but around $5,000), the NCCI or their State Bureau will calculate an experience modification. This “mod” factor is a result of the business’s loss experience and will be applied to the owner’s work comp premium. If an owner has better than average losses for their class and state, they will get a discount off of their workers’ compensation premium. If they have worse than average losses they will pay more because of a debit being added. Having a reputable claims handling group is also critical to keeping the experience mod low because if a claim is mishandled by the adjusting firm it can cause the business’s experience mod to be higher than it might otherwise have been. The BST Insurance Program works with financially secure insurance companies and experienced claim adjusting firms.


For many businesses, doing their own payroll processing in-house is a time consuming and complicated process. Mistakes can lead to significant penalties and unhappy employees. Payroll services are a valuable alternative to in-house processing. If chosen correctly, a payroll service can save your business money and offer a simpler means of paying your employees, filing your taxes and performing a host of other duties. Before selecting a payroll service, a business needs to evaluate their needs and ask these 7 critical questions.

Question #1. What Features Does Your Payroll Service Offer?
Make sure you understand what their basic service covers and how long those rates will remain in effect. Also, if there are payroll data mistakes, how long will it take to reconcile the errors and what will it cost?

Question #2. How Much Of Payroll Will I Have To Manage?
Different payroll providers offer different processing features. The types of services vary widely. Determine how much you want to be involved with and what tasks will need to be completed by you. For example, ask yourself, “Do I want to run my payroll when I want to, or only when the service has me scheduled for a run?”

Question #3. How Do I Get My Reports?
Larger providers can be inflexible with their reporting systems. Some will only print reports themselves and mail
them to you. Others allow you to run your own reports and print them in your office, but only a full day after running payroll. How soon can you get reports and how? How much do they charge you for reports? Be sure to find out.

Question #4. How Easy Is It To Switch Payroll Providers?
Find out what is involved in switching to a new service. Can they accept employee information directly from your preferred accounting software? How will they handle your money? When do they debit your account?

Question #5. Do I Get A Trial Register?
Until recently, some of the largest service bureaus could not tell you what your payroll was going to be until after all the checks were printed — which is not the best time to check for errors. Now some will give you a preview register to look over before the checks are processed. Ask what is available and if they charge extra for it.

Question #6. Is Your Payroll Service Backed By A Guarantee?
Generally, payroll services will complete your payroll correctly, but what type of guarantee do they offer covering
their service? Is there a satisfaction guarantee? Any promise for accuracy and processing payroll on time? Make sure they offer a guarantee and that you receive it in writing.

Question #7. Can You Provide Me With References?
The final step in making a decision on a payroll provider is checking references. Checking references is an important
way to validate the payroll provider you are considering. Ask the references how responsive the payroll provider is to your questions and ask about their payroll processing accuracy.

Employee Benefits

Many small-business owners mistakenly believe they cannot afford to offer benefits. But while going without benefits may boost your bottom line in the short run, than penny-wise philosophy could strangle your business’s chances for long-term prosperity. “There are certain benefits good employees feel they must have,” says Ray Silverstein, founder of PRO, President’s Resource Organization, a small-business advisory network.

Heading the list of must-have benefits is medical insurance, but many job applicants also demand a retirement plan, disability insurance and more. Tell these applicants no benefits are offered, and often top-flight candidates will head for the door.

The positive side to this coin: Offer the right benefit, and your business may just jump-start its growth. “Give employees the benefits they value, and they’ll be more satisfied, miss fewer workdays, be less likely to quit, and have higher commitment to meeting the company’s goals,” says Joe Lineberry, a senior vice president at Aon Consulting, a human resources consulting firm. “The research shows that when employees feel their benefits needs are satisfied, they’re more productive.”
Benefit Basics

The law requires employers to provide employees with certain benefits. You must:

Give employees time off to vote, serve on a jury and perform military service.
Comply with all workers’ compensation requirements.
Withhold FICA taxes from employees’ paychecks and pay your own portion of FICA taxes, providing employees with retirement and disability benefits.
Pay state and federal unemployment taxes, thus providing benefits for unemployed workers.
Contribute to state short-term disability programs in states where such programs exist.
Comply with the Federal Family and Medical Leave (FMLA).

You are not required to provide:

Retirement plans
Health plans (except in Hawaii)
Dental or vision plans
Life insurance plans
Paid vacations, holidays or sick leave

In reality, however, most companies offer some or all of these benefits to stay competitive.

Most employers provide paid holidays for New Year’s, Memorial Day, Independence Day, Labor Day and Thanksgiving day and Christmas day. Many employers also either allow their employees to take time off without pay or let them use vacation days for religious holidays. (See more on time off in “The Low-Cost Benefits of Offering Time Off” ).

Most full-time employees will expect one to two weeks paid vacation time per year. In explaining your vacation policy to employees, specify how far in advance requests for vacation time should be made, and whether in writing or verbally. There are no laws that require employers to provide funeral leave, but most do allow two to four days’ leave for deaths of close family members.

The federal Family and Medical Leave Act (FMLA) requires employers to give workers up to 12 weeks off to attend to the birth or adoption of a baby, or the serious health condition of the employee or an immediate family member. After 12 weeks of unpaid leave, you must reinstate the employee in the same job or an equivalent one. The 12 weeks of leave does not have to be taken all at once; in some cases, employees can take it a day at a time.

In most states, only employers with 50 or more employees are subject to the Family and Medical Leave Act. However, some states have family leave laws that place family leave requirements on businesses with as few as five employees. To find out your state’s requirements, contact your state labor department.