Workers Compensation

If you’ve ever gone to the emergency room with an injury, you’ve undoubtably been asked “is this injury work-related?”  The staff is checking to see which insurance is going to pay: the Worker’s Comp insurance or the Health Insurance.  The process of having the claim covered correctly begins the moment a patient is first seen.  

Employers have a responsibility to provide a safe working environment for their employees.  You can manage the tools and equipment they handle and the chemicals they use.  You can provide guidelines for ladders and training on lifting heavy bags of trash without back strain.  But in the cleaning business, employees are entering homes, businesses, buildings, and properties where you do not have direct control over their environment.    You can’t always control the dog that was supposed to be locked up or the car accident that happened on the way to a client.  

Unfortunately, employees do get injured at work.  And Worker’s Compensation insurance is the tool created by states that pays for their medical bills and lost wages.

Although it’s typically referred to as “Worker’s Comp”, the Insurance has two parts:

1. Worker’s Compensation – pays medical bills for work-related injuries or illness.  In addition, the coverage pays for a portion of lost wages while the employee is unable to work due to the injury or illness.
2. Employer’s Liability – liability (lawsuit) coverage for the employer.  If an employee brings a lawsuit against the employer resulting from a work- related injury or illness, this coverage protects the employer.  

In most cases, it’s required by law.  Worker’s Compensation laws and insurance benefits are state-mandated and vary from state to state.  All states have Worker’s Compensation laws that dictate who must be covered by a Worker’s Compensation policy.  Detailed guidelines are provided by every state to help employers meet their legal obligations to protect employees.

Another factor that pushes cleaning companies to purchase Workers Compensation coverage is the fact that it is often required in contracts with clients. 

The premium for a Worker’s Compensation policy is a fairly straightforward calculation.  It is based on an employer’s annual payroll broken down by employee classification and then multiplied by classification specific rates.  There are some additional state specific fees or charges, but the most significant factors are shown below.

Factors Affecting Workers Compensation Premium:

1. Classification – There are different classification codes based on the type of work your employees are doing.  Some work is more dangerous than others, and the cost to insure employees varies based on the risk.  Employees who are frequently on ladders cleaning windows are at higher risk than employees providing laundry services.  Each classification has a specific rate that is used in the calculation.
2. Annual Payroll By Classification – Insurance companies use the amount of payroll as a way to gauge how much risk an employer may have.  The more payroll, the more work that is occurring and potential for more claims.  An estimate of annual payroll for employees in each classification is provided to the insurance company at the beginning of each policy period.  Because Workers Compensation is an auditable policy, a final payroll figure is established through an audit at the end of the policy term.
3. Past Claims – Having more job-related accidents, injuries and illnesses does increase the cost of Workers Compensation insurance.  Your policy will show an Experience Modification Factor in the calculation of premium.  The more claims, the higher this factor can go.  However, it works both ways.  Reducing work related accidents, injuries and illnesses can also lower the Experience Modification Factor which then lowers the cost of your Workers Compensation insurance.  

It is good to remember that your Workers Compensation policy is an auditable policy.  At the start of your policy, the insurance company uses your estimated payroll for the year to calculate your premium.  However, payroll amounts can change dramatically from year to year.  To account for this, at the end of the policy term the insurance company will ask you to complete an audit of your actual payroll.  If your actual payroll was less than you first estimated, you receive a refund.  If your actual payroll was higher than you first estimated, you’ll receive an invoice for the balance due.