How We Saved $130,000 in Workers’ Comp Without Changing Carriers

Speaker A: What if I told you that your company might be losing six figures every year simply because your job descriptions don't match what your employees actually do and you don't keep appropriate records? That's not a scare tactic. It's what we discovered for a real client. $130,000 in preventable overspend on workers compensation. And we didn't fix it with a new insurance carrier or a discount code or some special loophole. We fixed it with actual HR work on the ground with their people, their files and their leadership team. In this video, I'm going to walk you through exactly how we did it from the initial conversation to the final premium reduction. Along the way I'm going to explain how workers compensation really works, why job classification codes matter so much, and how most businesses, maybe even yours, are setting themselves up for massive penalties or bloated costs without realizing it. So let's start at the beginning. We were on a weekly one on one call, one of those regular check ins we have with every complete HR client with a relatively new customer. That customer brought us in primarily because they were concerned about multi state compliance. They were in four different states and they also had a lot of kind of payroll complications uh, in their business because they were, they had a union shop as well. Their CEO mentioned something that caught our attention. This wasn't something we'd been brought in to do immediately, but came up. She said our workers comp premium is uh, high again this year. Our broker says it's just the market, uh, but it went up another like 10%. And, and we said gosh, that's, that's, that's rough. Now to be clear, rates go up. Uh, some industries are higher risk, but it turns out they were spending 8% of their entire payroll on workers comp. On a $4.5 million payroll. That's real money. That's a lot. And a uh, 10% increase in that is now taking them up to like 8.8%. Uh, that's more than just a market shift. That's a hemorrhage. And most importantly it's a signal that maybe something deeper is wrong, usually with the underlying classifications and documentation. So let me take a step back. Workers comp isn't optional. If you have employees, you're required by law everywhere in the United States to carry it. It's not a benefit like health insurance. It's a legal protection. If someone gets injured on the job, even if it's their fault, you as the employer are always liable. Okay, Period. It doesn't matter whether you have workers comp or not. You are required to have workers comp because those liabilities can be quite large. Workers comp is the mechanism that protects both your organization and the employees. It covers medical care, lost wages, rehab, and in return, it protects the employer from lawsuits in all but most the extreme negligence cases. So the question isn't if you need it. The question is, are you paying the right amount for what your employees actually do? It's not, gosh, should I get this? It's like, you got it, okay. And if you don't, you got a bigger problem. This is where classification codes come in. Every employee on your payroll is assigned a workers comp class code. It's typically a four digit number that identifies the nature of their work. For example, 8810. Most common. That's clerical. Very low risk. You sit at a desk like me all day and you could get injured. But it's very low. 9501. That's scenic painters or sign fabricators. Much higher risk. Here's the problem. Those codes aren't assigned by your payroll software. They're based on the work the employee actually performs. And it's your responsibility to keep them accurate. If they're wrong, either accidentally or because you haven't updated them in years, you can get hit hard during an annual audit or worse, not cover the appropriate risks that your people are doing. And then when they get injured, the workers comp won't cover it. That's probably the biggest issue. Another variation is each state you have a code and a state. Workers comp is a state by state policy. If your people are insured here in Tennessee, where I am, but they go down and they work in Mississippi, they're doing work in another state with different regulations and the insurance is different. You have to have insurance per state for every single employee. Now, most policies have, uh, addendums, basically they have, they have things that are added to the policy to cover each additional state, but do not only do you need to cover the job, you need to cover the state that they're working in. Just keep that in mind. Another note, every workers comp policy includes an audit. It's not a punishment, it's, it's standard. And that's because the way these policies work is you get a quote based on your estimated payroll per location, per classification. Right? So you say over the next 12 months I'm going to have, you know, 1 million in plumbers, 400,000 in office people, and they're all going to be working here in Memphis. Well, if that's right, great. They're going to give you a quote. It's going to be all set to go. But at the end of the policy year, the carrier is going to do a reconciliation. They're going to want your payroll records. You're going your 941s to make sure you're not just lying to them and say, all right, uh, actually, you only had 200,000 in admin and you grew. You actually did 2 million in plumbing. Well, now you're going to have like double the bill and it's going to be due at that audit. Plus you'll, uh, owe the million extra in payroll for the prior year. And now your next year's is 2.2. Right. And that's not a bug, it's kind of a feature. You're able to get insurance for the whole year, even though, honestly, you didn't pay for it through that year. Right. You grew a lot and you didn't pay for it, and then you got to pay for it at the end. It's all okay. Uh, but that audit is a big part of this. If they undercharged you, you get a bill. If they overcharged you, get a credit. Either way, your records have to be tight or the default assumption is risk, and that means higher cost. So in this case, we started our investigation, we requested a copy of their current policy and broke down their payroll by code and by state. And what we found in their audit return that, ah, we didn't handle, it was from the prior year. Nearly 80% of their employees were listed under a higher risk category than was justified by their actual work. Now, we could have stopped there, given them the feedback, sent a polite email to their broker, but that's not how we work. We rolled up our sleeves and we dove deep into everything. We interviewed department heads and the employees themselves. We sat down with the frontline employees and asked, what do you actually do every day? Let's go over what we've written down as your job descriptions. We pulled those out, we looked at timesheets, bonus logs, hours worked by function, which they didn't have a lot of data on, but we were able to get some general feelings for. And then from that, we built out a brand new classification map, line by line, roll by roll, location, and what we found was exactly what we expected. Some people were primarily doing desk work, but were classified under field or production roles. Some had split duties, but there was no time tracking in place to separate how much time they spent in each. In workers comp. If you Have. If you can't prove a split, the entire role defaults to the highest risk category. So this particular company makes giant signs. Okay? Now, a lot of their work is in a print shop. Guys pulling things off a printer and sewing them together on the ground. It's not no risk. You know, they have designers who sit at a computer all day. They're very low risk. And these guys handling printing machinery, they're a bit higher risk. And then they have guys who climb billboards and stick it on the side of a highway using, like, ropes. And that's a very high risk category. Okay? Also, they worked in a bunch of different states. And I gotta tell you, New York, more expensive than Vermont, more expensive than, uh, Maryland. Right? So keeping track of where they're working and what they're doing made a big difference. Designers who sat at their computer all day, but then would drive out and look at the billboard and go, that's what I designed. We're getting classed as people who climb billboards. Um, once we had the data, we rebuilt the job descriptions. Accurate, updated and aligned with reality. Then we implemented a tracking system so split role employees could document their time by work type and location, not as a burden, but as protection. So that during the next audit, we have a clean breakdown of who did what and when. Next. Now HR's done. No, no, no, no. Next came the broker strategy. We didn't just dump this data and hope for the best next year. We partnered with their existing brokers, sat down, walked them through our findings, and prepared the justification packets for reclassification. And just to be thorough, we shopped the policy with two alternative brokers to verify competitiveness. The result, they went from an effective 8.8 now effective workers comp rate to 2.2 on a $4.5 million payroll. That's more than $130,000 in premium savings without reducing headcount, without even changing carriers. And they are better protected. They're much more accurate in what their people are doing. All that by correcting how their employees were represented on paper. We didn't stop there. We actually took the payroll system and put in a report every quarter. We pull the payroll by class, by code, and by the insurance premium that's been assigned to each one of those. And we can see how much we've spent of that annual payment upfront. That way, if there's a variance, right? We know mid year, like, hey, you're growing. We estimated 4.5 million. Maybe he doubles in size next year. That would be Great. Goes to 9 million well, he should know along the way, halfway through the year, you've already done 4.5 million. Everything after this, when the audit comes, you're going to owe. And we set up, uh, with their accounting team on a liability account where if we go over that, we know what the cost, uh, is going to be. That way he can prepare for the audit and not feel like it's coming out of nowhere. It's not. It's correct. It's not bad. It's just that he grew a lot. Okay. Um, so that ongoing reporting makes this less of a problem. We also reviewed their workers comp policy type. In this case, they were using a traditional annual billing model, which is what most of our clients use. That means estimated premiums were paid, uh, in his case, quarterly, but reconciled once a year for that audit. That works fine if your team is stable and your classifications are dialed in. But if you're growing, shifting roles, or hiring seasonally, it can create that audit whiplash, that big cash need at renewal. Some employers qualify for like, pay as you go workers comp, we work with those all the time, where we calculate the premium, every payroll and then pay it immediately based on the actual wages and job code. It's nice not to have a big bill up front. It's accurate, uh, it's not always available and it's often not always cheaper because the big policies are all annual based. But it can reduce those audit surprises dramatically. We walked the client through that option and worked with the broker. But ultimately they stayed on a traditional policy due to their stable team structure, the new classification accuracy, it worked better for them. The alternative carriers that could do the pay as you go were more expensive. So let me just pause here. Many business owners think of workers comp as a checkbox. We have it, we're fine. But it's more than that. It's a living, breathing policy that reflects your operational structure. And it's only as accurate as the documentation and the processes behind it. Here are three things I'd like for you to do right now. Review your class codes, pull your most recent worker's comp policy, and look at the codes assigned to each role. Are they accurate? Are they current? Are they based on what people used to do or. Or what they actually do today? And then make sure your people are assigned to the appropriate buckets. Or at least their hours are would be even better. Second, take a look at your job descriptions. Are they specific? Do they reflect the true risk level? Would they hold up in front of an auditor or a claims adjuster? If someone were to be injured and they said, okay, well, look, this is what we insured you for. You've marked them as 8810 administrative, but they're out on the side of the road every day moving traffic cones. It's like, okay, we got a problem here. Decide. Uh, third, I, uh, want you to look at your states. If you got employees boots on the ground in another state, you gotta let your workers comp know the rate will be different for each code in those other states, and you gotta have a way to track it. And fourth, decide whether your current billing model traditional or pay as you go actually matches your business needs. You have high variability, frequent hiring, unclear roles. Pay as you go might help a lot if you're more stable. Um, traditional. With that, strong oversight works better, especially if you can do like we do and track your costs throughout the year so there are no surprises. No matter the policy type. You need a process. A process to update roles, document changes, communicate with your broker. That's what we mean when we say we're an embedded HR department for our clients. We don't just advise, we execute. We do the audit, we rewrite the job descriptions, we build the tracker, we coordinate with the broker, we support and do the audit. This isn't a call center. This isn't software. It's real people doing real work for real teams with real results. So if any of this feels familiar, or if your premiums feel high, if your auditors are unpredictable, if, uh, you haven't looked into your job codes in years, let's give that a fix. I created a free workers comp audit and compliance checklist that walks through everything I just described step by step. So your team can handle it yourself. You can download it using the link below. If you're a US business with more than 10 employees, I'd be happy to talk directly to you. If you're an executive or owner, there, uh, no pressure, no pitch, just a 30 minute deep. Uh, dig into your current setup and see if we can help or if I can give you some advice on where to go. I love meeting business owners and executives of U.S. businesses. I say that a lot because I get a lot of bookings that are like, I'm in Europe or I'm an employee over here. And I don't think we're doing our workers comp right. It's like, let me help the business owner executives book some time with me. And I'm, uh, not going to pitch you. I just want to figure out what we're doing. And see if there's any way I can help or just give you some, uh, advice to take back to your team. Clarity isn't just cost savings. It's confidence. It's about protecting your people, your business, your bottom line. And it starts with knowing what your team really does and making sure your system's reflected those job descriptions we created. There are useful a thousand other ways, from ADA claims and disability to recruiting, uh, uh, onboarding, setting performance standards. All those things tie into one another. It's this giant system of processes for your people, your people processes. And I'd love to help you out with them. Thanks for watching. And remember, don't HR alone. Get out there, get your work done. Let me know if you need any help.