1099 Labor for Workers Compensation Insurance

Posted on May 15, 2013 by Josh Frerking

1099 Labor- Is it really saving you anything?

Through the good times and the bad, business owners are always looking for a way to improve their bottom line. For many companies a place many businesses look to save money is within the classification of their employees. Contract labor, or 1099’s, are an approach some employers look at which can seem beneficial, however this may be a very slippery slope.

Before anything else it is very important to consult your insurance agent, your tax accountant, and also your attorney to make sure you are looking at all aspects of this employee classification properly. There can be tax implications that affect the way your business taxes are filed which can cost you if these are not correct, and your control indicated either directly or implied can determine legal implications as well.

I am an insurance agent (not a tax accountant or Attorney), so the insurance aspect is what I will address:

The most common area this issue arises is regarding workers compensation insurance. Each state has specific guidelines regarding the qualifications to meet the 1099 classification for your employees. If an individual does not meet all of these guidelines he/she will typically be treated as a W-2 “True” Employee.

This means they will be considered with the employee count when determining if you are required by law to carry workers compensation in your state. I have seen several employers who have seen this issue with their applicable department of labor and this is an issue that is much better to catch on the front end by doing your research and consulting with professionals.

Most insurance carriers, when performing a workers compensation audit, will consider sub contractors who have their own company and perform work for multiple companies as sub contractors as long as they provide proof of  their own workers compensation coverage. If the sub or 1099 does not show proof, the carriers will typically add any payments made to that sub over the course of the policy term as additional auditable payroll. This is a major cause of many workers compensation audits we see.

A few things most states look for in determining if your workforce meets the qualifications for 1099’s are:

1. Do your employees use their own tools?

2. Can they come and go and take breaks as they please?

3. Do they work just for you or also for other companies?

4. Do they have their own company/business entity in place?

Here are a few questions you should ask yourself can help determine which option is best for your business:

How much control do you need over my workforce in order to effectively run your business? What are the guidelines for individuals performing work for your company to meet the 1099 classification in your state? What are the pros and what are the cons to each classification (both short and long-term)?

This is an issue that could be discussed and debated forever and there is not a clear answer to which is the best option as it may be different for each business. I have seen very successful business using each platform and some utilizing both. The key to their success does not necessarily lie under which classification of their workforce they chose, but more under the homework and organization they did up front to make sure they are set-up properly and looking at the long-term benefits not just what appears to be a quick savings on the front end.

The important thing to take from this is that the subject of 1099 vs W-2 employees can become a very complex process when classifying your workforce. Having this put together right in the first place will save you a lot of time, headaches and money in the long run.

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What is the difference between a traditional W-2 employee and a 1099?

Posted on May 10, 2013 by Alex McFarland

A W-2 employee is a direct employee of a company. When they receive a paycheck, that employee has had deductions for federal and state taxes, Social Security contributions, etc.

On a 1099, the payment earned will be listed, but there are not any deductions taken out of their check for any State or Federal taxes, Social Security or State income taxes be deducted.

A 1099 is not an employee of the said business, but hired on as a free-lance worker. This is filed with the IRS and the obligations of taxes are passed on to the recipient.

With the increasing cost of doing business today, some employers think that they can simply hire a 1099 as opposed to a W-2 and not have to concern themselves with carrying workers compensation coverage. If done appropriately, this is an accurate statement. If not done within the context of a true 1099 relationship this is a violation of the law.

As an employer, if you hire a 1099, you should retain copies of their insurance coverage.  If you do not retain copies and you get audited, you would be responsible to pay premium for the workers compensation coverage for the earnings for that 1099, the same as you would if you had a W-2 employee.

All companies (including a 1099) should have their own General Liability coverage in place. If you hire a 1099 and their work is the reason for a liability claim, who do you think that claim would name?  The company that they hired to perform the work, or a 1099 that was hired by the company that was hired to do the work?

The same is true for the workers compensation coverage. If you hire a 1099 and they were to get injured on the job, they have every right to take legal action against the company that hired them. If you don’t have the workers compensation coverage in place for your business, you are completely exposed for a lawsuit.

If you think that hiring a 1099 is a better decision for your company to grow, make sure that you are doing so within the definition of what a true 1099 is. Remember to always retain certificates of their insurance as well, just in case an accident was to happen.

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2013 Workers Comp Market Conditions

Posted on May 7, 2013 by AJ Schrage

Overall, the 2013 Workers Comp Market Conditions are becoming more challenging as industry-wide hardening continues.  Carriers continue to pull out of the marketplace due to financial pressures faced by workers comp providers.  For many business owners, the days of focusing on cost alone for workers comp insurance are a thing of the past.  In many cases, finding any coverage solution is the goal.

With respect to carriers providing workers compensation insurance, the 2013 Workers Comp Market Conditions are essentially a culmination of conditions that have been building for several years.  The industry has been losing money for a number of years.  Rising medical costs have exacerbated the financial pressure on carriers.  Additionally, carriers are faced with more restrictive capital models which limit their appetite for risk.  Additional concerns such as uncertainty for continued government support of terrorism related coverage further limit the aggressiveness of carriers.

To provide further insight into the lay of the land from the eyes of an insurance carrier, it is important to realize that the workers compensation insurance industry has been running at a ratio of around 1.20 for the last 3 years.  In other words, insurance companies have been paying out $1.20 for every $1.00 they receive.  That is obviously bad business and not sustainable.  The response by most carriers to attempt to change that has been to increase pricing and be careful about which businesses they quote; in other words to seek out companies with the lowest claims potential and thus, the most profitability.

Although the 2013 Workers Comp Market Conditions are experiencing a lot of turbulence, most of our insurance carrier partners feel as stable as I recall.  They are still aggressively going after business that they feel are good risks.

In general, businesses that are having the most difficult time finding coverage in the standard market are blue-collar oriented or healthcare related.  However, we still have several carriers such as Patriot Underwriters, Accident Insurance Company, Amerisafe and FirstComp that are aggressively quoting blue collar businesses and other tougher risks, while FirstComp is starting to roll out a new pay as you go product.

Carriers such as Hartford, Travelers, AmTrust Workers Comp and Employers appear to be becoming more careful with the types of risks they’ll insure, but they continue to offer wonderful pricing for targeted clients.

The transportation industry has always been hard-pressed to find open market coverage and that remains the same.  If it happens to be a situation where traditional carriers are not an option, we have access to the assigned risk pool, or State Fund, in most states.

Businesses that have a good loss history in the assigned risk pool may be able to reduce their rates by moving back to open market insurance carriers as overall market conditions improve in the coming years.

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Reducing Workers Compensation Costs by Separating Payroll by Class Code

Posted on April 26, 2013 by Justin Bartmess

Reducing Workers Compensation Cost:  

Separating Payrolls with Multiple Class Codes

Separate your payroll by class code to reduce the cost of workers compensation insurance.

When multiple workers compensation class codes apply to a business, typically each of the codes have a different rate per $100 of payroll.

When the end of policy payroll audit is being completed the auditor will automatically assign ALL of the employee’s payroll to the most expensive workers comp rate, unless the business owner can provide verifiable records proving when an employee was performing work in a each particular class code along with the wages they were compensated.

Providing verifiable records separating payrolls into the correct class code can result in substantial savings.

As time consuming of a task as this may seem it can be as easy and straightforward as a log book.  At the end of the business day or when your processing payroll write the date, employee name, employee hours, job duties and job location address.  For business owners who use a payroll company or an online payroll/accounting software, input the class code per hours worked and job duties performed.

Typically multiple class codes apply to construction businesses so the example below is related to a construction business located in Alabama and performing trim carpenty, painting, and interior installations:

This example is based on a total payroll of $188,000.00.

5437 – Interior Trim – Payroll = $30,000 – Rate per $100 payroll – 17.01%

5474 – Interior Painting – Payroll = $20,000 – Rate per $100 payroll – 15.91%

9521 – Interior Decor Install – Payroll = $138,000 – Rate per $100 payroll – 11.19%

Total Premium for this business when providing Verifiable Records that separate payrolls by workers compensation class codes = $23,727

Total Premium without providing verifiable records to separate payrolls = $31,978

*** Without verifiable records all payroll would be classified to the most expensive code which is Interior Trim, 5437.

The difference in premium is $8,251.

So I guess the question is whether or not a few easy steps to break out payroll is worth the savings for the employer.

A workers compensation classification is a 3 or 4 digit code assigned descripe a type of work or “job duty”.  Most states utilize the classification system from the National Council on Compensation Insurance (NCCI).  A few states maintain their own classification system.

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Can I Reduce the Cost of Workers Comp Coverage?

Posted on April 8, 2013 by Tim

If you have a business and are required to carry workers compensation coverage, the question that most employers ask themselves is “What can I do to keep the cost of my insurance as low as possible?”

Finding Lower Rates for Insurance Coverage.The answer is not always that simple. The purpose of workers comp insurance is to protect not only your business, but also your employees as well. You know as a business owner, that you are only as good as your employees can allow you to be, and that accident do happen.

Unless you are in a rate-mandated state, individual carriers will file their own workers comp rates with each state individually. What that means for you, as a consumer, is that shopping your policy can turn out to offer you a savings from one year to the next. This does not guaranty that you will find a lower insurance rate, but wouldn’t you like to know you are getting the lowest rates and best price possible?

There are a variety of determining factors that help to calculate what your base manual rate is. Have you had any claims? Have you implemented any safety procedures that would help to educate your employees in safety? Do you take advantage of any safety services that are available to you as a business owner to do everything that you can to try and prevent injuries from occurring?

No one can foresee an accident happening. You can try and reduce the risk through education and safety meetings. These simple and effective methods of communication with your employees and emphasis in proper training and safety could mean the difference between having minor or zero claims, to a catastrophic injury.

There are many pieces to the work comp puzzle for helping to control the cost of workers compensation coverage.

The question is, do you want to try and be proactive or reactive?

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Proposed Changes To Illinois’s Workers Compensation Laws

Posted on April 2, 2013 by Shannon Dye

Illinois Proposes Changes To Workers Compensation Laws:

Illinois Workers Compensation ReformOn March 20th, Rep. Dwight Kay, R-Carbon presented four bills that are geared at changing the workers compensation policies in Illinois.

The bills were not voted on but Rep. Dwight Kay did present them to the Labor & Commerce Committee and provided testimony.

The four bills are 1245, 1246, 2229, and 2769.

Bill HB2229 would amend the Workers Compensation Occupational Diseases acts.

Bill HB2769 would change how workers compensation benefits’ are paid out when an employee files a claim that has sustained a previous injury that resulted in partial disability.

Bill HB1245 changes how state employee’s claims are made.

Bill HB1246 would require the Department of Central Management Services to charge the employing state agency for workers’ compensation payments for medical expenses and temporary total disability paid to an employee. Current law only does this in certain situations dealing with temporary total disability payments (Madison-St. Clair Record).

The proposed bill that is most alarming is HB2229.  This bill would add a distinction between EMT’s and Firefighters. Currently EMT’s and Firefighters are classified the same in regards to workers compensation.  HB2229 amends the verbiage to say  “certain rebuttable presumptions regarding certain conditions of a firefighter, emergency medical technician (EMT), or paramedic.”  The bill would also delete the section that says: blood borne pathogens and tuberculosis as conditions to which those provisions apply.

So why are these bills so important?

These bills are important because the state of Illinois ranked 4th in 2012 for highest workers comp rates in the country. The proposed bills may not effect a lot of business in Illinois but it is sign that the state realizes changes need to be made.

Illinois has five border states, and in 2012 all of those states offered drastically lower workers comp rates. Wisconsin ranked 12th, Kentucky ranked 22nd, Iowa ranked 25th, Missouri ranked 36th, and neighboring state Indiana Workers Compensation ranked an impressive 50th.

When IL business owners understand that there are 5 states bordering Illinois who’s rates are that much lower, it has to raise the question: Why not move to one of those states?

The state of Illinois is finally starting to see the big picture. Businesses are not going to stick around when they have so many more affordable options for insurance.

While the workers compensation reform is not going to effect most people immediately, the changes are coming and there is a light at the end of the tunnel.  Who knows, maybe by this time next year Illinois will no longer be in the top 5 for the highest rates in the country!

Learn more about Illinois workers compensation insurance.

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Workers Comp Claims Management Practices Help Control Costs

Posted on March 27, 2013 by AJ Schrage

As medical related costs increase, they drive up the cost of workers compensation insurance with them.  While preventing workplace injuries is always the primary goal, it is also important to have an established claims management process in place before a loss occurs.

The following steps serve as a good roadmap for a successful workers compensation claims management process.

First, it is important to promptly report claims.

Prompt claims reporting leads to lower costs and is beneficial to the injured employee, employers and the insurance companies.  This lessens the chance of increased medical expenses due to delayed medical care.  Medical costs, administrative costs, litigation costs, lost-work time and indemnity payments can all be reduced by prompt claim reporting.

Most insurance carriers require all injuries to be documented on the workers compensation First Report of Injury Form.

Prior to the occurrence of an injury, employers should stress the importance of immediately reporting all injuries to managers. 

This procedure allows managers to evaluate a potential claim and to facilitate the appropriate reporting process with the employer’s insurance carrier.  Ideally, a company’s accident reporting protocol should be included in training and should be posted at a high visibility common area such as a break room.

It is also important that the employer is able to facilitate immediate medical care for an injured employee when necessary. 

This can dramatically improve health outcomes and reduce costs (both medical and legal).  Additionally, employers providing return to work programs and alternate duty employment options can prevent wage loss, reduce lost time, increase productivity and also improve morale.  Return to work programs and alternate duty employment are excellent ways to lead to faster claims resolution and reduced costs as well.

A well thought-out claims management process can control an employer’s costs and maximize the benefit from the employer’s workers compensation insurance. 

Costs may be increasing industry-wide.  However, reducing the size of employer’s claims will lower a company’s overall long-term workers comp insurance costs.  Additionally, better industry-wide claims management practices can slow the overall increases to the cost of workers comp insurance overall.  It might also help proactive employers avoid having to pay more for comp insurance with a State Fund workers compensation policy.

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Your Insurance Purchase- What’s the Big Difference?

Posted on March 25, 2013 by Josh Frerking

As an insurance professional, I work with business owners every day who are constantly battling with one very important question:

“How can I keep the premium I pay for Business Owners Insurance (BOP) down while keeping my Business protected adequately?”

In the business climate we live in today, there is constant pressure to lower that bottom line and get the most out of every dollar you are putting out there to run your business. This is obviously a necessity as a business leader, but how can those lower premiums end up costing you much more?

Looking at insurance as a valid purchase starts with your mindset and how you make this buying decision, and why you are making this purchase in the first place.

Insurance is not just a tax that you are paying and have no control over, that ownership is the first thing to consider when making your insurance purchase.  Focus on finding insurance policies that meet your needs and then you compare and shop for the best pricing.

This can be hard to do, but it is vital to truly understand the risk that you are taking on with some lower priced policies.

When buying insurance it should really be compared to buying a car. The safety features(policy coverage), reliability of the service(Agent availability/Carriers Claims service), accessories that make your life easier that you never thought you would need(additional coverage’s).

If the car you purchase does not keep you safe in an accident, there is no limit to the damage that can be caused by this. If your business owners policy does not have the protection you need, it can cost you much more than the premium you pay.

This doesn’t mean that the highest price policy is the best coverage either for your company.

When you review various business policies there are some similarities from company to company, however they all have their throw in’s and their exclusions which can vary sometimes slightly and sometimes quite a bit.

Coverage’s like Hired and Non-Owned Auto as well as Data Breach and EPLI (Employment Practices Liability Insurance) are some common coverage’s which are freebies on some policies but not on others.  Some companies offer these as optional additions to the policy where others can write these as a separate policy altogether.

When assessing the value of a General Liability Policy, one thing to keep in mind is the amount of risk which the carrier is taking on. Most general liability policies see per occurrence limits as low as $100,000 and as high as $2 million. For a policy that could many times vary by just a couple hundred dollars, it is important to make sure you are getting the coverage’s you really need, not just the lowest price option.

Like buying a car, the choice you make should be there to protect you and fit your needs. If you were purchasing a motorcycle for the good fuel economy and being a vehicle which can typically be purchased for less than most cars those are two attractive features to purchasing. But if your vehicle purchase is to provide a save vehicle for chauffering your family of four, this vehicle would not fit your needs. Insurance policies are the same way as the product that might have an attractive feature and a lower price but might not be the right fit for your needs as a business.

The main priority in choosing the best business insurance policy for your company is to identify the risks that your business could be exposed to and make sure your policy covers those areas. Your professional insurance agent can help identify these areas which you are exposed to and help provide a policy accordingly; one which covers what you need but also a policy that doesn’t have costly coverage’s things you might not be exposed to.

Shop business insurance.

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How Do I Get Workers Compensation Insurance?

Posted on March 25, 2013 by Justin Bartmess

There are several ways to go about getting workers compensation quotes and coverage solutions for “most” business owners.  However, for those industries that are more difficult to insure there are typically only a few coverage options.

Get workers comp

How do I get workers compensation insurance?

Many “high risk” industries are typically quoted by the appropriate State Fund or Assigned Risk Pool, a payroll + workers compensation insurance provider, or sometimes the insurance carrier that writes your business owner package.

Less Difficult, mainstream business types have several more options for quotes and coverage.  Insurance carriers typically want to fight for these businesses since they are more predictable in terms of losses, and thus more profitable.

Business owners should turn to agents who focus on writing workers compensation insurance daily.  They are the most educated in the industry, familiar with the frequently changing rules and regulations regarding owners inclusion/exclusion, payroll minimum/maximums, classification rules, and end of the policy audits.

Business owners and Employers can find good workers compensation insurance agents local to their area or through the Internet.

Searching for work comp quotes through the internet is generally the best option, those agents have access to multiple insurance markets giving the business owner more competitive pricing to choose from.  When searching on the internet use phrases such as “workers compensation insurance quotes” to find the best deals.

One of the most important factors when you purchase workers compensation insurance is feeling comfortable with the agent and insurance company you are working with.  Good agents represent numerous strong insurance carriers and help educate employers about coverage to help eliminate surprises that could create additional premium due or claim issues.

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Oklahoma Legislature Considers Workers Comp Reforms

Posted on March 20, 2013 by Tim
All Eyes on Oklahoma legislature
For those who haven’t paid attention, the state of Oklahoma is considering numerous major workers compensation reform proposals. Several issues will likely pass throughout the year, but a couple are key proposals being considered that will have a major impact on work comp premiums in the state.
First, the idea of shifting OK’s Workers’ Compensation Court to an administrative system will likely pass in some form or another. This will lead to long-term reduction in work comp premium for business owners. As a recent editorial in the Oklahoma Gazette (http://www.okgazette.com/oklahoma/article-17715-point-time-to-fix-wo.html) proclaims: “Ours is a system where everyone loses: the employers, the taxpayers and, most importantly, the injured workers themselves.”
Currently, the workers compensation system often pits the employer and employee against each other in litigation proceedings characterized by dueling trial lawyers and dueling doctors. Simply put, that’s a lot of people getting paid (http://mooreamerican.com/local/x730446285/Senate-unveils-Administrative-Workers-Compensation-Act).
Under one proposal of the reform, beginning Jan. 1, 2014, workers compensation claims would be heard and decided by administrative law judges who are appointed by a group of three commissioners. This theory would help streamline the claims process, significantly reducing the amount of claims insurance companies pay out since it would prevent claims from bottlenecking in the court system.
Employers are currently paying the sixth-highest workers compensation rates in the country, which seems strikingly out-of-balance for a country that’s 49th in cost of living. The good news is the legislative branches have two boarder states they can use as inspiration for reform. The obvious solution is to model a workers compensation system similar to Arkansas, which ranks 49th in work comp premium rankings.
Another option is an extremist reform to model after Texas Workers Compensation, which doesn’t mandate workers compensation, but employers are liable for any workplace injuries through the judicial system. There has been some discussion about making Oklahoma a voluntary coverage state (OK, 48 other states, and DC all mandate companies carry work comp coverage). This is only a far-fetched theory, but if it were to come to fruition, a change like that could potentially have a significant impact on the workers comp market nationwide. Not only are carriers watching Oklahoma closely, independent insurance agencies are also paying close attention (Insurance Journal article: http://www.insurancejournal.com/news/southcentral/2013/02/08/280719.htm).
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