In the U.S., only the state of Texas does not require employers to carry workers’ compensation coverage for their employees. However, workers’ comp requirements generally vary across state lines. For instance, in Virginia, employers with only one employee do have to carry workers’ comp insurance. However, workers’ compensation mistakes can potentially lead to huge losses by way of costly injuries and high premiums. Here are five common workers’ compensation mistakes that can cost you.
Inaccurate Projection of Payrolls
Typically, when purchasing workers’ compensation insurance, you have to make a payroll projection for the year. This is because the amount of your payroll determines how much coverage you need, as well as the cost of your policy. Unfortunately, you can end up making a wrong projection, which can later affect your premiums during the annual premium audit. More specifically, underestimated payroll may cause an increase in your premiums while the insurance carrier may refund you in case you overestimated the payroll. While the latter sounds like a good thing, you will have lost possible investment income to the insurance company by paying excess premiums. Therefore, always make accurate payroll estimations by knowing the exact number of your employees, how many hours they work including overtime, and how much you pay them. Alternatively, you can consider the pay-as-you-go workers’ comp option since it eliminates the guesswork in workers’ compensation underwriting.
Proof of Workers’ Compensation Insurance
Since it is not your responsibility to purchase workers’ comp for your independent contractors, you should ask for proof of workers’ compensation insurance from them before they start working. This is because the insurance company will treat uninsured independent contractors as your employees. As such, you may incur penalties and additional charges during the workers’ comp annual audit if you can’t provide proof of workers’ compensation insurance for your subcontractors and independent contractors. In case an uninsured sub-contractor gets injured in the line of duty, the contractor will be responsible for paying for the medical expenses and other costs involved.
Not Informing the Insurance Company of Changes in Operations
The insurance company classifies business operations into codes depending on the level of risk involved. This, in turn, enables them to determine suitable workers’ comp for the named code as well as the cost of the coverage. According to the National Safety Council (NSC), the construction, transportation, and warehousing industries are among the riskiest industries recording millions of injuries every year. Since a high risk mostly translates to high premiums, the cost of your workers’ insurance will be significantly high in case your business deals with high-risk operations. This means that in case you change your operations, you should inform the insurer for proper adjustment of your workers’ compensation premiums. If not, you may end up with either excess or insufficient coverage, depending on the risk involved in your new business operations.
Poor Management of Workers’ Compensation Claims
Although the employee plays a role in filing a workers’ compensation claim, it is largely the responsibility of the employer, per the Society of Human Resource Management (SHRM). Since your claims frequency can negatively affect your Experience Modification Factor (MOD), which also impacts insurance premiums, ensure you enforce safety measures in your workplace. Additionally, manage your workers’ comp claims by adhering to the following tips:
- Report the injury to the insurance company as soon as it happens.
- File a workers’ compensation insurance claim within the stipulated time, usually 3 years, although it can vary from one insurance company to another.
- Take an active part in investigating the accident and document every detail, including the cause of injury, witnesses present, and action is taken.
- Follow up with the insurance company concerning open claims.
- Organize medical care for the affected employees.
- Implement a return-to-work policy to enable injured employees to resume work as soon as they get well.
Classifying Employees as Independent Contractors
The federal government exempts independent contractors such as freelancers from having worker’s compensation insurance. Due to the thin line between employees and independent contractors, some employers often misclassify their workers, and this can end up in a legal battle with the labor authorities. While some employers ignorantly misclassify their employees, others do so intentionally to evade taxes and workers’ compensation insurance. To solve this problem, the Internal Revenue Service (IRS) provides the criteria for differentiating employees from independent contractors:
Your worker is an employee if you have the right to control and direct their work. This includes giving instructions on how to perform the work, training them for the job, or evaluating the details of how the work is done. For independent contractors, the employer is only interested in the result.
Employers have significant control over the finances of their employees, including means of payment and where to purchase health or life insurance coverage.
Employer-employee relationships tend to be long-term with written contracts and benefits such as pension plans, insurance, and paid time-offs (PTO). On the other hand, independent contractors are usually short-term workers who only show up when there is a task for them.
Take note that misclassifying a worker can result in huge fines, penalties, or even a jail term. Luckily, you can seek help from IRS experts if you are unable to classify your workers well.
These are some of the mistakes to avoid when it comes to workers’ compensation in North Carolina. To protect your employees, the experts at Pittman Insurance Group, LLC are available to discuss and clarify any questions you might have about workers’ compensation insurance. Contact us right now to get answers from our experienced representatives.