Workers’ Comp: A tax masquerading as insurance?
Employers in all 50 states are required to pay for workers’ compensation premiums. But yet, most surveyors have less control over the cost of that workers’ compensation insurance than they do over already out-of-control health insurance costs, and far less control than that provided for those onerous federal taxes. Fortunately, there are a number of cost-cutting strategies that can help even the smallest surveyor or surveying business keep workers’ comp costs manageable.
Workers’ compensation is a program providing payments, without regard to a finding of negligence by either party, to workers involved in specific job-related injuries.
Workers’ compensation is independently regulated by each state. The cost of providing workers’ compensation “is one of the top concerns in survey after survey of our members,” according to a spokesman for the National Foundation of Independent Businesses, a trade group representing over 575,000 small businesses.
Why is workers’ compensation such a big cost for so many surveyors? For one thing, workers’ compensation medical benefits are considered an entitlement, not an option, so insurance must pay the entire cost. Lawmakers in each state set the limits of benefits that are paid to injured workers while state insurance commissioners regulate the rates that insurers may charge employers to cover those benefits.
Further contributing to those high costs are the often hazardous working environments of a surveyor.
Under common law, as well as the workers’ compensation laws, every surveyor or surveying-related business is liable for injury to employees at work. Whether that injury or illness is caused by the failure to provide safe equipment, safe working conditions, hiring competent fellow employees or to warn employees of an existing danger, an employer is liable. In every state, an employer must insure against potential workers’ compensation claims. Naturally, employee coverage and the extent of the employer’s liability vary from state to state.
Living With Workers’ CompThe workers’ compensation system that has been in place in this country gives surveyors strong incentives to make workplaces safe—at least if they have a fixed, permanent workplace.
These rates often depend on the hazards present on the type of jobs normally undertaken and on the safety record of the surveying business/employer.
Payments to employees under workers’ compensation are usually set at a fraction of the employee’s wages (usually one-half to two-thirds since these sums are tax-free to the recipient). Workers’ compensation also typically reimburses the injured worker for medical and rehabilitative exposure.
In most states, workers’ compensation coverage is provided either through private insurance or through self-insurance arrangements. However, 20 states offer coverage through state funds and six of these require employers to use state funds.
According to Richard Victor, executive director of the Workers’ Compensation Research Institute in Cambridge, Mass., in the past 10 years, workers’ compensation rates have risen more than twice as fast as the general inflation rate. In hazardous lines of work, such as construction, trucking, manufacturing and outside service jobs, rates can amount to more than 10 percent of payroll.
Until recently, higher workers’ compensation costs were driven primarily by ever-increasing cash benefits for injured workers, says John F. Burton, Jr., a Cornell University Professor of Labor Economics and the publisher of a bimonthly workers’ compensation newsletter. “In the last few years, however, there has been a slowdown in cash benefits growth and medical expenses have become the principal cause of cost increases,” Burton states.
That rise in workers’ compensation medical costs is compounded by the widening definition of work-related injury. Repetitive motion injuries and stress-related illnesses are now routinely charged to worker’s compensation. The so-called VDT (Video Display Terminal) disease—a cumulative trauma disorder caused by typing on a computer keyboard—has made workers’ compensation an office worker’s disease.
While workers’ comp costs are increasing, the U.S. government maintains that workplace injury and illness rates are declining. In fact, these rates declined in 1999 for the seventh straight year—nearly a 30 percent drop since 1992, according to the former Secretary of Labor, Alexis Herman.
Injuries and illnesses dropped four percent in 1999, according to Herman, even though employment rose two percent.
Cutting Workers’ Comp CostsIs there a practical solution to these mandatory, high insurance costs? For larger businesses, one way to save on the high cost of workers’ compensation insurance premiums is to self-insure. A 1999 Tillinghast survey (Tillinghast is the insurance consulting division of New York-based Towers, Perrin) of more than 500 employers revealed that 42 percent of firms self-insure. What’s more, 25 states presently permit small companies to join self-insurance plans.
Many businesses frequently band together in a group to buy stop-loss coverage for the truly big bills. They often join through a trade association that represents others in the same line of business. As with conventional insurance, premiums will probably fluctuate based on the claims experience of the median of the group.
Today, many safety conscious—or cost cutting—surveying business owners automatically label workplace safety improvements as something of someone else’s concern. Workplace safety improvements are not, however, limited to requiring hard hats for construction workers or safety goggles.
Any worker using a computer who spends hours forcefully typing on an awkwardly-placed keyboard may suffer swollen wrists and fingers, symptoms of tendonitus or worse. The generic name for these and similar disorders is “cumulative trauma” or “repetitive motion” disorders.
These disorders are a significant problem for many office-based surveyors and their support staffs. In fact, they have become one of the most rapidly growing categories of workplace problems, according to Roger Stephens, an industrial engineer/ergonomist for the Occupational Safety and Health Administration (OSHA). In 1998, the Bureau of Labor Statistics reported 337,800 cases of cumulative trauma disorders, 150 percent up from the 172,900 cases it reported five years ago.
Talking Down Workers’ Comp CostsCommunicating with workers often helps reduce the cost of workers’ compensation insurance. Listening to employee suggestions about modifying the workplace or working conditions is always beneficial. Working with the employee to make his or her job less stressful, less physically demanding or less repetitive can lead to a modified workplace where job-related injuries are far fewer and insurance premiums considerably less.
Communicating with an employee after a workplace injury has occurred can also substantially reduce workers’ compensation costs. Honestly informing any injured employee about his or her rights under workers’ compensation laws, reassuring him or her that his or her job (or a less demanding job if necessary while they are recovering) will be waiting for him or her goes a long way towards reducing lawsuits.
Aside from working to reduce workers’ compensation claims, many surveyors are attempting to improve safety, both in the workplace and in the field—the very thing our lawmakers had in mind when they made workers’ compensation insurance mandatory. Naturally, closely monitoring workers’ compensation claims—and fighting false or exaggerated claims where necessary—can also go a long way toward reducing unwarranted or excessive claims.
Even the smallest surveying operation will find the rewards greater—and costs greatly reduced—once they realize that workers’ compensation is not one of those business costs that nothing can be done about.
sidebar: Workers’ Comp = Owner’s DisabilityIt is every surveyor’s worst nightmare—a serious accident or long-term illness that can lay you up for months or even longer. Disability insurance, sometimes referred to as “income insurance,” can guarantee a fixed amount of income—usually 60 percent of your average earned income—while you’re receiving treatment or are recuperating and unable to work.
Many experts recommend buying disability insurance for yourself as well as for key employees. Many small businesses frequently go one step further by purchasing “key man” insurance, a life insurance policy that pays the business in the event that the owner or a key employee dies.
There are two basic types of disability coverage: short-term (anywhere from 12 weeks to a year) and long-term (more than one year). An important element of disability coverage is the waiting period before benefits are paid.
For short-term disability, the waiting period is generally seven to 14 days. For long-term disability it can be anywhere from 30 days to a year before the benefits kick in. If being unable to work for a limited period of time would not seriously jeopardize your surveying business, you can reduce your premiums by choosing a longer waiting period.
Another optional add-on is “business overhead” or “business continuation” insurance which pays for ongoing business expenses such as office rent, loan payments and employee salaries if you, the business’ owner, is disabled and unable to generate income.