Workers' Comp Options

WHAT IS WORKERS COMPENSATION?

Workers compensation (a.k.a work comp. or comp) is insurance that provides wage replacement and medical benefits for employees who are injured in the course of employment. In exchange employees relinquish the right to sue the employer for negligence. The trade-off between assured, limited coverage and lack of recourse outside the worker compensation system is known as “the compensation bargain.”

While plans differ between jurisdictions, provision can be made for weekly payments in place of wages (functioning in this case as a form of disability insurance), compensation for economic loss (past and future), reimbursement or payment of medical and like expenses (functioning as a form of health insurance), and benefits payable to the dependents of workers killed during employment (functioning as a form of life insurance).

Damages for pain and suffering, and punitive damages for employer negligence, are generally not available in worker compensation plans. Negligence is generally not an issue in the case. All staffing companies that treat their workers as employees (versus independent contractors) must have a workers compensation coverage.

The Bottom Line

Workers compensation can be a significant cost to your staffing business and should be reviewed at least every three months. From updating your safety programs to reviewing the status of work comp claims, workers’ comp needs to be administered and managed in your staffing business on a regular basis.

Large Account Premium ( 250k+ ) Program Highlights:

• Greater flexibility with premium payments
• Customized Risk Management Program design and execution
• Greater attention from carrier
• Lower work comp rates
• Possible tax savings
• Most appropriate for light and heavy industrial codes.
• Applicable for PEO/EOR/ Private Carrier and State Fund comp programs

Note- — Provided exclusively by our team of nationwide Licensed Insurance Agents

Professional Employer Organization (PEO) aka “Staff Leasing”

Professional employer organizations (PEOs) enable staffing companies to cost-effectively outsource human resource management including workers’ comp. This allows your staffing firm to concentrate on the operational and revenue-producing side of its operations. A PEO option:

• Provides a workers’ comp solution often with less expensive rates than some direct carriers and State Funds (depending on your comp loss experience.)
• Administers workers’ comp claims
• Manages employee benefits and payroll
• Manages payroll tax compliance
• Administers unemployment insurance claims
• Manages health benefits

As employee related requirements become more and more complex, a PEO solution assumes all these human-resource management responsibilities using a business model identical to ADP’s or Paychecks. A PEO provides integrated services to effectively manage critical human resource responsibilities and employer risks for clients. A PEO delivers these services by establishing and maintaining an employer relationship with a staffing company’s employees and by contractually assuming certain employer rights, responsibilities, and risks.

The staffing company still controls the daily management of employees and controls all aspects of the employees’ work schedules.

Hundreds of staffing companies use PEOs, and estimates show 2-3 million Americans are currently “co employed” through a PEO. Even though there are over 800 PEOs in 50 states, Work Comp Staffing Solutions has found only about five PEOs that specialize in servicing the staffing industry, and can effectively manage the large employee turnover that most staffing companies incur. These PEOs manage about $1 billion of payroll annually each.  The PEO industry currently generates between $136 billion and $156 billion in gross revenues. PEOs have an 88 percent client retention rate due to strong client satisfaction.

Employer of Record (EOR)

An Employer of Record ( ie EOR) is very similar to a Professional Employer Organization (ie PEO) in that they both provide work comp and payroll services in a turnkey fashion to the staffing company. EOR’s enable staffing companies to cost-effectively combine payroll services and work comp coverage for all employees. In turn, a staffing firm can concentrate on the revenue-producing part of the business. Work Comp Staffing Solutionss’ preferred EOR’s (like their PEO’s) service all 50 States.

EOR’s will work with start up staffing companies; whereas most PEO’s will only work with staffing companies with at least 1 year’s experience, and with at least 300K/yr in payroll.

In an EOR arrangement, the employees are 100% the legal responsibility of the EOR. Conversely, with a PEO, it is a “shared legal relationship” between the PEO and the staffing client. This shared legal arrangement with a PEO is also referred to as a “co employment” arrangement. Like with a PEO, with an EOR, the relationship between with the staffing firm is generally invisible to the employee, and staffing companies clients. The staffing company still controls the daily management of employees, all recruitment and screening activities, and controls all aspects of the employees’ work schedules and pay rates.

Benefits of an EOR (which are similar to a PEO) :

• Provides a workers’ comp solution often with less expensive rates than some direct carriers and State Funds (depending on your comp loss experience.)
• Administers workers’ comp claims.
• Manages employee benefits and payroll processes.
• Manages payroll tax compliance.
• Administers unemployment insurance claims.
• Workers compensation payments are “pay as you go.” Usually no upfront deposits are required.
• Charges between 1.5-3.0% of payroll for providing all administrative services.

Over 1500 staffing companies use EOR’s. Work Comp Staffing Solutions only works with a few EOR’s because Work Comp Staffing Solutions only uses EORs that are very experienced in the staffing industry, and have stable work comp carrier relationships. Some EOR’s are not experienced in the staffing industry. Work Comp Staffing Solutions’s preferred EOR’s all have client bases of over 150 staffing clients and have been in business for at least 10 years.

Benefits of EOR and PEO’s

Most of Work Comp Staffing Solutions workers compensation programs are offered as “pay-as-you go” payment plans. With the PEO or EOR options, work comp fees are paid on a weekly or monthly basis and are directly related to the amount of payroll processed the previous week or month. This is one of the big benefits to using staff leasing or PEO programs. With direct carrier policies or captive programs, usually a 25% deposit is required upfront. Then the staffing company is required to make monthly installments to the insurance company based on a mutually agreed upon schedule. This is fine if your payroll increases during the course of your policy term, but if your payrolls fall, these prearranged monthly payments can become a cash flow burden.

Drawbacks to EORs and PEOs

Unlike a guaranteed program (like most State funds), with a work comp deductible element on a policy or PEO program you agree to pay a specific amount of money out-of-pocket when you file a covered claim.
For example, one of your employees has an accident, and the accident will cost the insurance company (or PEO) $5,000. If you’ve set your deductible at $500, then you’ll pay the first $500. The workers’ comp insurer pays the remaining $4,500. Alternatively, if your employee’s accident results in $500 worth of comp costs (or less), you’ll pay the entire workers’ comp claim.

State Sponsored Work Comp Program (aka Assigned Risk Pools)

A state-sponsored work comp policy —frequently referred to as the “State Fund or State Pool” in many states–pays benefits to workers who become injured or disabled in the course of their employment. All states require employers to cover the cost of work related injuries or illnesses, but not all employers can get their coverage through a private carrier, PEO’s, EOR’s or other work comp programs. Employers in high risk industries (ie oil and gas for example) or with high experience modifications (X-Mods) are frequently turned down by less expensive work comp options and must turn to the state funds. All states are required by law to offer some kind of worker’s compensation coverage to all employers. State sponsored programs are not the most economical, and dealing with state bureaucracies can be very time consuming. California, New York, Florida and Pennsylvania have overly bureaucratic and very challenging state managed work comp programs.

If you select a state fund policy as your work comp solution, Work Comp Staffing Solutions can refer you to an excellent payroll administrative service that specializes in processing staffing client’s payrolls, and administrating staffing health benefits.

Private Carrier Program

This workers compensation option is usually only for staffing companies with a good workers’ comp loss history, have been in business for at least 3 years, and generates premiums of at least $15,000 a year. Some leading private insurance companies and markets that offer these policies to staffing companies include AIG, ULLICO, Guaranty, Travelers, Liberty Mutual, Berkshire Hathaway and Pinnacol. As a result of selecting better staffing companies, their rates are usually lower than a PEO or EOR, and less expensive than the state funds.

Private carriers will usually require:

• 30% down payment on the annual premium and may finance the remaining 70% over 6- 9 months.
• An annual on-site audit that will review class codes for accuracy—rate discrepancies and payroll levels.
• At least 3 years of good work comp loss history.

If you select a private carrier policy as your work comp solution, Work Comp Staffing Solutions can refer you to a payroll service that specializes in processing staffing clients payrolls and administering staffing health benefits.