For something that’s mandatory in most states, workers compensation insurance is not very well understood. This makes perfect sense since there are a number of moving parts — some of which you have no control over.

Most states require business owners to carry workers comp insurance even if they only have one employee. This may seem like a heavy financial burden for startups or other small businesses.

As a small business owner, how can you effectively reduce your worker’s comp costs? Keep reading to see a breakdown of actionable steps you can take today.

Workers Comp Costs: How Does It Work?

Workers’ compensation premiums use a deceptively complex formula.

Take your payroll and divide that by 100. Next, multiply that by your rate. Then, multiply the result by your experience multiplier.

At the end, you’ll have your premium.

The rating of your workers’ compensation is determined by a classification system. This classification is made up of:

• Basic classification
• Standard exceptions
• Governing classification
• General exclusions
• General inclusions
• State exceptions

Once you have your rate, it makes finding your premium much easier. Let’s use a typical Florida state rate for painters of 7.73 with a payroll of $400,000. If we simplify the formula and multiply the payroll by 7.73%, that gives us $30,920.

Now for the interesting part, which is the experience modifier.

This modifier is what you can take control of. The experience modifier starts at 1.00 and will increase or decrease based on your company’s performance over time. This number is in comparison to the industry average.

A good record that lowers your experience modifier to 0.90 can be applied to the rate. We can take the 7.73%, multiply it by the modifier of 0.9, multiply the resulting percentage against the payroll of $400,000 and get the premium of $27,828. If we let things slide a little too much and receive an experience modifier of 1.1 we get a final premium of $34,012.

As you can see, it saves you thousands to do what you can in lowering your experience modifier by even a few points.

How to Lower Workers Comp Costs

So what can you do to lower your experience modifier and therefore your workers’ comp costs? 

1. Give priority to safety on and off-site for workers
2. Participate in a return-to-work program for injured workers
3. Get involved and enrolled in state-sponsored safety programs
4. Join a recognized group for group rating discounts

Another way you can dramatically reduce your costs is to join a PEO. A professional employer organization helps you to manage your workers’ compensation costs and claims. It also helps you to organize payroll, help with safety challenges, and resolve claims.

PEOs cut worker compensation premiums by negotiating with insurance providers on your behalf. They can also evaluate and advise you on workplace safety and designing a safety program that works for your business.

Slashing Your Workers Comp Cost With a PEO

You can manage and reduce workers’ comp costs on your own. But if there’s a better way, with PEOs on your side, why not take it?

We’ve been placing companies with the best PEO solutions since 2008 and we can help to put you in touch with a PEO that’s right for your business. PEOs also prefer to specialize in certain industries — and we know a good match when we see one.

To learn more about PEOs and how you can slash your workers’ compensation plan more than you ever thought, get in touch today with Intrepid Payroll.