Workers Comp Categorizations Can Be Costly to Companies

How can you understand if the right sum for workers comp insurance is being charged? I am not talking about whether you believe your premium is not too low. I am inquiring what process do you have to verify that what your company really does is correctly represented in your rate categorization? I am waiting… OK that is my idea.

Does This Describe Your Business?

So you said you were about to hire your first employee and phoned your insurance agent. Your broker had consistently done an excellent job on your own car insurance so you figured she is likely an expert at workers comp insurance too. The broker came out and looked around your new company. Your car subsequently examined her workers comp evaluation guide from ABC insurance company and decided one of the accessible 330 categorizations approved by the Pennsylvania Compensation Rating Bureau (PCRB) and imputed it to your business. The insurance company subsequently billed you a premium based on your payroll and your classification. End of story?

Now it is 10 Years Later

Congratulations! Not only have you stayed in company for a decade you have actually prospered. Instead of only one worker, you’ve 50. And lad has your company changed. No longer do you simply make widgets, you dole out, install, and service them. The truth is, you do not actually make them. Five years ago you decided it was more economical to outsource the production portion of the company. Throughout this time as your amount of workers rose your representative checked in with you and raised your payroll.

Is Categorization Quite Uncommon?

NO! The industry consensus is that anywhere from 60%-75% of all businesses have some kind of miscalculation.

Suppose the rate for widget production is $8 for each $100 of payroll. We are going to further assume that 40 of your 50 workers are classified as a group and as such signify $1,200,000 of payroll. But what will happen if your workers were correctly classified at the lesser widget service rate? Multiply that by the amount of years you have been categorized and you may begin sobbing!

How Do I Prevent This From Happening?

There are two parts to this solution:

  1. Partner with an insurance provider who is personable and will remember you even after you sign the contract.
  2. Make sure your supplier understands the nuances of workers comp insurance and is proactive in tracking your account. In our example above, the broker did check in occasionally to update your institution’s payroll. But she did not understand that the company had shifted and that there was a reclassification in order. An unneeded and expensive error!

If you follow these tips, your business will be thriving in no time.