Helping Your Workers' Compensation Clients

Many business owners, especially new ones, have so many challenges to consider like hiring employees, payroll burdens, and of course insurance. As your client’s insurance agent, it becomes important to help them see what they might be missing. Eager business owners are out to do one thing, make money. However, many do not realize that certain practices are viewed in a negative light. Here we will address a few practices some business owners can avoid, especially as it relates to their workers’ compensation insurance (WC). You can help your clients by educating them on these negative acts to avoid:

1. Hiring 1099 labor to avoid paying payroll taxes. This has been around a longtime, but recently it seems to be more prevalent. Why negative? It is commonly viewed as a way to cheat the system and the employee out of the benefits of being paid on W2 as a full employee. Underwriters are sometimes leery of the use of 1099 rather than W2 payroll.

2. Hiring all or a high % of sub-contractors. The use of subs is very common especially in the construction industry and often becomes necessary when a business has a larger contract that requires more labor. Why negative? With workers’ compensation, even if the subs have their own WC, there is still liability if the sub hires employees who are not covered if the sub owner has just an exemption. Or, if the sub’s COI is found to be invalid, any injury falls back to the WC carrier, but they did not collect premium for the added exposure. Higher % of subs equals higher risk. Also, agents should emphasize to their clients that any subs used during the policy year who did not have their own WC or the policy holder does not provide proof they had WC will cause the carrier to charge all of that paid amount as part of their audit. This one item often produces very large audit balances.  Additionally, many WC carriers limit the amount of 1099 pay to subs with just an exemption.  Be sure your client understands this or they might face a substantial audit balance.

3. Reporting injuries too late. Some business owners are not as organized, or they are afraid to file WC claims, so they wait. Why negative? The WC carriers are extremely concerned about claims filed too late. More than 48 hours is too late. Carriers prefer immediate notification of any injury so their claims team can help advise and manage the claim to mitigate any unnecessary cost or legal fees. The consensus approach on WC claims handling is to meet the need of the injured worker with sincere concern and care. If they are not given this opportunity, often the claim turns into a much greater expense unnecessarily.

4. Waiting to get WC until you are caught. Some businesses just ignore the law of WC being required with a certain # of employees unless the state shows up with a gun and a badge demanding proof of their WC coverage. Why negative? Businesses who practice waiting until caught may reflect a person who seems to have poor moral character. If they “cheat” like this, what else will they cheat on?  Here’s a one page flyer you can share with prospects, add your logo and info: Flyer.

5. Trying to get away with being misclassified. In most states, the guidelines for the correct classification or class code for a risk is determined by NCCI using their Scopes manual. However, there are some industries that have no specific classification so the carrier may determine the proper classification. However, an NCCI inspection can determine final classification. Why negative? Some insurance savvy business owners may try to use the cheaper of two possible class codes in order to save money. One example, in FL lawn care is class code 9102 with a current rate of 2.75. The landscaping code 0042 has a rate of 4.63. If a risk does both lawn care and landscaping, a business owner might suggest all payroll is under the cheaper class. Year end audits often catch this sort of trickery and causes the carrier to be suspect with the policy holder overall.

6. Not cooperating with year-end or final audits. Carriers are on the hook to pay claims for all payroll and have controls in place to be certain they are receiving their just premium and proper classification. Why negative? Business owners who do not comply with audits are viewed just like tax evaders. These business owners do not like it when their customers do not pay them timely, why should the insurance carrier?  Also, the owner may not be aware that by not cooperating with their required audits for WC they may suffer penalties. In FL when there is no response or cooperation for the audit attempts, there is a 3 times non-cooperation fee assessed which is 3 times the estimated audit balance. Additionally, this practice will most likely prevent the risk from obtaining new policies. This is especially negative when the risk must be referred to collections since it removes the agent from receiving commission.

7. Assuming officers are exempt from WC. For officers of the business to be exempt or excluded from required WC coverage, they must file with the state department of insurance. It is the responsibility of the officers to be sure they have properly filed exemptions and kept up to date. Why negative? Business owners or officers who assume they are exempt and surprised by an audit balance for their pay are the same owners who could have filed a claim and the claim be covered for WC. The officers should know how to manage their own exemptions. As their agent, it is critical you are clear in explaining this to your clients.

8. Not having or maintaining safety protocols or programs. Having a safety program in FL renders a 2% credit on the WC premium. Many risks do not have written safety programs, and some have little or no safety standards. Why negative? The business owner who has little emphasis on safety shows disregard for their greatest asset: Their employees. This lack of concern often produces negative results on WC claims and can cause their experience mod to be higher.

9. Payment issues. Everyone understands that paying the premiums is required to maintain coverage. Why negative? It is viewed as a poor risk when there are repeated payment issues like cancelation and reinstatement once the payment is made late. This shows the quality of the business owner. When considering a risk to renew or other carriers to consider, the underwriter often will look at their cancelation/reinstatement history as a red flag. Cancelation and rewrites with a lapse in coverage is also a negative often attributed to non-payment of premiums. That history will follow the risk, and that shows a weaker risk to consider when they apply for coverage.

10. Change in operations. When a risk changes their operation, it is important to let the WC carrier know. Why negative? If a risk starts out as a lawn care company, then adds tree trimming using a bucket truck, there is a drastic difference in that risk since you go from ground level work to working at heights. Failure to advise the carrier perhaps out of fear of being canceled or charged more premium is considered fraudulent since failure to notify the carrier is required by law of these major changes.  Claims may be denied.

Disclaimer: The above information is provided from 25+ years of experience with writing workers’ compensation.  The above accuracy is limited to my own knowledge, research, and experience.