To control workers’ compensation costs, most businesses consider long-term approaches such as proactive safety training, aggressive return-to-work strategies and the classic “just don’t have claims” ideology. While those are tactics that are effective, it won’t help right away. If your business wants to reduce workers’ compensation costs immediately, consider the following strategies to reap savings.
5% Safety Committee Credit
In Pennsylvania, this program recognizes employers who establish and maintain active committees that identify and respond to safety concerns within their workplace. When certified by the Commonwealth of PA, the employer earns a 5% discount on their workers’ compensation premium. As of April 2019, 12,306 PA employers covering nearly 1.56M employees earned this credit. That results in a total workers’ compensation premium savings of $739,355,172! A committee must meet certain requirements to qualify, but the direct and indirect benefits will surely pay off in the long run. McConkey is happy to help clients earn a 5% savings on their workers’ compensation premium by assisting establishing a certified committee.
Pennsylvania Construction Class Premium Credit
Companies who pay a higher wage than their peers can receive a credit because premiums are based on total payroll in a given class code. In PA, companies are not allowed to remove overtime pay or prevailing wages for fringe benefits paid directly to employees when they report payrolls. This can result in an “overcharge” of their workers’ compensation premiums. Because of this, PA encourages construction companies to apply for a credit that is calculated by comparing the contractor’s specific hourly wage to a state derived average hourly wage. If you pay a higher hourly wage, you may qualify for a graduating scale of credits. Some McConkey clients have earned as high as a 30% credit on their annual workers’ compensation premium. This credit can also be applied retroactively, so it’s not too late to receive a credit on your current policy!
Allocating Payrolls in Lower Rated Class Codes
Would any company voluntarily pay a $6 rate when they could pay a $0.25 rate? Of course not, but many contractors are because they don’t realize there are situations where employees could be classified as Outside Sales instead of the governing class code. Minor changes in an employee’s job function could allow an employee to be rated in a lower cost class code. McConkey’s clients’ payrolls are reviewed on an annual basis to ensure that potential savings can be realized.
Executive Officer Limitation
For policies effective on or after 4/1/2019, the maximum amount of payroll reported for an executive officer for purposes of workers’ compensation is capped at $132,600. This can result in a significant reduction in premium as executive bonuses and profit sharing are included in wages for premium calculations. This limitation only applies to executive officers who fall under the 951 (Outside Sales) or 953 (Clerical) classifications.
Within the workers’ compensation manual, there are guidelines for what can be excluded from remuneration, or wages, to lower the premium basis. The following are common exclusions:
- Employer payments to a group benefit plan or pension plan
- Meal money for late work and work uniforms
- “Perks” including club memberships, sporting events, educational expenses, and relocation expenses
- Employer contributions to employee benefit plans such as health savings accounts and flexible spending accounts
While there may be more effective ways of controlling long-term costs, such as a robust safety program or taking on a portion of the risk through a group captive or similar program, the above items can be put into effect immediately and result in savings on workers’ compensation premiums this year. Please reach out to anyone on the McConkey team to discuss any of the strategies outlined above.