When a business is too small to qualify for an Experience Modification Rating in Texas and they meet the requirements below, workers compensation carriers apply a “premium incentive” discount for small employers. Employer looking to purchase workers compensation in Texas need to fully understand the program.
Requirements To Qualify:
– Premium paid for workers compensation insurance must be less than $5,000/year.
– 1 year of current/prior coverage with 0 lost-time claims = 10% discount
– 2 years of current/prior coverage with 0 lost-time claims = 15% discount
– 2 years of current/prior coverage with 2 or more lost-time injuries in the last year = 10% discount.
The biggest catch to the small premium discount is, IF the business exceeds $5,000 in premium throughout the policy period (determined at audit) the business loses the premium credit resulting in an addition of premium to the audit balance.
For example, $4,999 premium receiving 15% discount = $749.85 discount. After the audit is complete, if the premium exceeds $5,000 due to increased payroll the small business owner will be required to pay the additional premium (due to increased payroll) and the $749.85 small premium discount.
Texas employers are often not informed of this potential pitfall until they lose their premium incentive credit and receive a big audit bill from the carrier. In fact, many agents are not even aware of these rules because they don’t specialize in workers comp insurance. Therefore, its often buyer beware for business owners.