Ouch! Don't let workers' comp costs squeeze your bottom line

California CPA, Jan-Feb, 2003 by Don Butler

Workers' compensation laws and regulations increase in number and complexity each year. All too often, employers simply rely on their insurance companies to handle any cases and keep workers' comp costs from skyrocketing. While this may work most of the time, companies must do more than sit on the sidelines. This is especially true given the rapidly rising premiums that employers are paying for workers' compensation insurance.

In the first quarter of 2002-the most recent statistics available--employers on average paid 21 percent more for workers' comp coverage than they did a year earlier, according to the Workers' Compensation Insurance Rating Bureau of California, a trade group that analyzes data and recommends pure premium rates to the state Department of Insurance.

During that period, California employers paid $3.8 billion in premiums for workers' comp insurance. The bill for the year was $11.9 billion and California is already on track to exceed that in 2003.

And, thanks to Assembly Bill 749, higher benefits will be applied to claims starting Jan. 1. By the time the bill's fully implemented in 2006, the bill will increase employers' costs by 22.8 percent.

A FEW HIGHLIGHTS OF AB 749

* Maximum workers' compensation benefits for temporarily and permanently disabled workers will increase 20 percent--from $490 to $602 per week--beginning Jan. 1.

* Disabled benefits will increase to $728 per week in 2004, and $840 per week in 2005, and annually thereafter based on cost-of-living adjustments in the state's average weekly wage.

* Benefits for workers who are permanently partially disabled will see an increase from the current rate of $170 per week to $230 by 2006 (the rate increases gradually each year in the interim).

Despite the dire statistics, there are steps--many inexpensive--that employers can take to minimize workers' compensation costs. Among those steps:

1. Make job site safety a priority every day. A safe workplace can lower your claims cost by preventing accidents in the first place. Ensuring job safety generally is an inexpensive investment compared with what your costs would be following an accident.

For example, if some of your employees must lift or move heavy objects, make sure they have the proper equipment to do so. Or, make sure hallways and areas surrounding offices and cubicles are open and free of items that could hinder or impede walking traffic.

For more information on how to make your workplace safe, visit the California Division of Workers' Compensation website at www. dir.ca.gov/dwc/dwc_home_page.htm. Remember to tailor your safety program to your business' conditions.

2. Fix dangerous conditions. When you become aware of a job site hazard--repair it immediately. Failure to do so could result in a "serious and willful misconduct" suit against your business should someone get injured because of the hazard. These types of suits carry severe penalties. And what's more important, you--not your carrier--would pay these penalties because you failed to take action.

3. Train supervisors. In workers compensation law, supervisors are included in the definition of "employer." Ensure that all supervisors know what is required of employers, including how to keep a workplace safe, how to take workers' comp reports if an employee is injured and who to contact if an incident occurs.

4. Report employee Injuries promptly. As soon as you are aware of an injury, notify your carrier by completing and sending the Employer's Report of Occupational Injury or Illness. The report requires you to provide information such as the nature of your business, the type of injury or illness suffered by the employee and how it occurred. Other necessary information includes the employee's salary and work hours, which are used to compute benefit payments. Your complete statements in each of these sections are necessary.

Doing this immediately, when the facts are fresh, lessens the chance of errors being made on the forms, which could lead to higher costs down the road.

To help make timely reporting easier, some carriers have 24-hour claims service that allows you to report an injury and complete a report over the phone.

5. Provide the employee with a claim form as soon as possible. You're required to provide the employee with an Employee's Claim for Workers' Compensation Benefits form within one working day of learning of an injury. The employee should return the completed form to you. When you receive the employee's completed claim form, sign it, date it and then immediately forward the original to your carrier. The first indemnity payment must be made within 14 days of your knowledge of a disabling injury.

Failure to provide timely benefits may result in a penalty, which may be levied against you as the employer--not your insurance carrier--if it is determined that you did not file the claim form with your carrier on time.

Remember, signing the employer's report and the employee's claim for benefits does not constitute acceptance of a claim.