In this four-part blog series, we'll look at some of the administrative responsibilities that Professional Employer Organizations (PEOs) handle when they're utilized by a business. In part 1, we explored human resources (HR) administration responsibilities, such as background checks, exit interviews, and labor law compliance. In this part, we'll talk about workers' compensation — a core component of your overall administrative cost burdens.
Workers' compensation is a form of insurance that provides the costs associated with workplace injuries. Technically, workers' compensation applies to injuries sustained "in the course and scope" of an employee's duty to your business. In America, almost every business (regardless of size) purchases workers' comp insurance. For starters, workers' comp is mandated by the majority of states, so there are specific legal requirements that force many businesses to pursue this form of insurance. But, even outside the scope of law, workers' compensation is a critical safeguard that protects your business from erroneous expenses.
Administrative duties are often time sappers. While many small business owners spend around 45 hours per new hire to onboard, 5 hours per payroll period to deal with payroll, and around 1 day a week on various HR administrative duties, the primary factor for outsourcing workers' compensation isn't time — it's cost.
The average cost of a single workers' comp claim is around $40,051. When you factor in rate increases, Experience Modifier (EM) bumps, and the overall labor burden that's associated with claims processing, workers' compensation can easily transform into the single most expensive component in your overall HR framework.
How PEOs Can Assist With Workers' Compensation and Claims Management
Not only do PEOs help strip away many of the time-consuming workers' compensation workflows away from your business, but they can provide the critical resources, assistance, and advice you need to reduce your overall workers' compensation cost burden.
1. Workers' Compensation Procurement
Selecting the right workers' compensation insurance is an art. The right PEO will come in and do a thorough risk assessment to understand your exact workers' compensation needs. There are plenty of unique variables that go into choosing the right workers' comp plan, including:
- Local, state, and federal guidelines
- Your risk behaviors
- Previous workers' compensation claims
- Your industry
- What type of clients you service (e.g., some industries require a specific EM to secure contracts)
In addition, PEOs will pour over your Declaration Pages, Loss Runs, and EM to help garner the right direction to take your business. The goal is twofold: secure the best possible rate and reducing your risk appetite. Of course, this also means that PEOs do an annual review of your overall insurance coverage to ensure the best possible fit for your unique business ecosystem.
Hint: Since workers' compensation insurance may be bundled with your PEO service, you may not have to pay those large upfront deposits that typically accompany workers' comp insurance. Also, PEOs leverage economies of scale by pooling your employees with employees from all of their other clients to secure better insurance rates at the negotiating table.
2. Workers' Compensation "First Report of Injury" Assistance
Filing a "First Report of Injury" in a timely manner is crucial. Not only does it improve accuracy and ensure that employees get access to critical care, but it directly impacts your costs. Studies show that workers' compensation claims skyrocket the longer it takes you to fill out a First Report of Injury document.
- 2-week lag in reporting time: Claim costs go up by 18%
- 3-week lag in reporting time: Claim costs go up by 29%
- 5-week lag in reporting time: Claim costs go up by 45%
And we're talking about big numbers. With an average cost of around $40,000, a lag in reporting time can cost your business around $20,000 in additional claim costs. PEOs can assist you with both documenting and filing these critical documents, as well as identifying areas of improvement for your overall workers' comp framework.
3. Claims Management
The process of managing claims is more complicated than you may think. For starters, the entire claims process can be incredibly complex, reaching the upper echelons of the legal system in rare cases. You'll also have to consider your EM rating. This is especially important for construction workers and contractors, who often are required to meet specific (typically >1.00) EM standards to secure specific types of contracts.
When you break this down, some companies may benefit from group retro programs that offer lower premiums but have the potential to tarnish EM ratings, while other companies may benefit more from higher premium workers' comp programs that help reduce EM via EM capping or similar programs.
The entire claims management process is a large, living, breathing organism that requires constant attention. Does it make sense for your business to join a 15k program? Should you pay out-of-pocket expenses? Does salary continuation make sense in your unique situation? These are all variables that your PEO can help you understand.
4. Processing of Annual Premium Audit
When business owners hear the word "audit," it can be akin to hearing that you need to pull an "all-nighter" studying for an exam. It's nightmare material. Unfortunately, annual premium audits are a regular part of the workers' compensation process. But fortunately, a PEO removes virtually all pain from this experience. In fact, the auditing process can be swift, easy, and painless if you hired the right outsourced HR partner.
In general, you'll need to supply the following records:
- State Employer's Quarterly Unemployment Insurance Tax Reports
- Form 941 or 943 reports
- 1099, W2, and W3 forms
- Contractor records
- Overtime wages
After that, your PEO should help you conduct the full audit swiftly. Without a PEOs help, you may find yourself buried in paperwork and confusion.
5. Legally Required Labor Postings
Law dictates that employers must post certain notices in highly visible common areas of the workplace. These include things like the Equal Employment Opportunity (EEOC), the Occupational Safety and Health Act (OSHA), the Family and Medical Leave Act (FMLA), and (more recently) The Families First Coronavirus Response Act (FFCRA). And that's not all. There is a swarm of posters that your business needs to post up to remain compliant.
A PEO will ensure that all of these postings are up-to-date and in the right location.
6. Identify Exposures & Recommendations
Since a single workers' compensation claim can do significant damage to your business's overall liquidity, finding potential risks and identifying exposures should be front-of-mind for business owners. This process starts during onboarding. Are you performing the right interviews? Are you hiring the right people? Does your training reduce injury risks?
But reducing risk continues on throughout every employee's lifecycle. Are you properly managing incidents? Do you have the right assistance programs in place? Are you OSHA compliant? Can you identify fraud?
Mitigating claims requires you to uncover exposure points and breed a safe culture. PEOs can help you discover where your risks are and give you the advice you need to reduce them.
7. Return To Work Program Set-up Assistance
Research consistently shows one thing: the longer employees stay out of work due to injury, the less likely they are to return. Return t Work (RTW) programs are designed to keep employees working during their injury period. Typically, this involves partnering the employee with a nonprofit organization where they can spend time engaging their minds and performing baseline duties. The value of RTW is immense for both employers and employees.
For employees, RTW programs give them the opportunity to earn a salary while out of work. For employers, RTW programs result in employees returning to work 3.6 weeks sooner on average. Given the costs of hiring new employees ($4,000 for on-boarding and 2 years to become fully productive), RTW programs stand out as significant value drivers.
PEOs can help employers establish, maintain, and initiate best-of-breed RTW programs that keep your employees around after injury.
PRemployer Can Help
From claims management to RTW programs, labor postings, and annual premium audits, PEOs can help your business navigate the incredibly complex world of workers' compensation — saving you money and time in the process. But that's only one small part of what PEOs can do for your business. Check out the next section Employee Benefits Administration to see how PEOs can deliver a plethora of administrative benefits to your business.