Here with us again to talk about workers' compensation are Scott Burns and Ben Moore, our friends from BB&T. When it comes to the law, what do small business owners need to know about workers' compensation?
Andrew Bowen: Alright, we're back. I am Andrew Bowen your host of CBR's B2U Podcast, presented by CBRbiz.com. We bring Charlotte’s business resources directly to you.
If your employees don't love your business, your customers won't, either. You've got to buy what you're selling, you know what I'm saying? This means sharing your vision for the future with your team. It means making sure they know that their work is appreciated. And of course, it means letting them know that you have their backs no matter what. One of the best ways to support your team and let them know that you are there for them is through insurance, and we're not talking about health insurance–we're talking specifically about workers' compensation insurance.
Here with us again to talk about workers' compensation are Scott Burns and Ben Moore, our friends from BB&T. This is the second part of our conversation with these two. You can find part one and eventually part three at CBRbiz.com. Welcome back, you guys.
Scott Burns: Good to be here.
Ben Moore: Thank you for having us.
Andrew Bowen: Alright, don't talk all at once, right? Okay, so we talked during the break about how exciting workers compensation is. A hot button topic especially lately from what I understand. When it comes to the law, what do small business owners need to know about workers compensation?
Ben Moore: So in the state of North Carolina…
Andrew Bowen: Very important.
Ben Moore: …you're required, if you have three or more employees, to cover workers' comp. You have to purchase a work comp policy. But what a lot of people forget is even if you have just one employee, you technically have to…you will have to pay for their claims. So you're still on the hook; you just don't have to buy it if you have one or two employees.
Andrew Bowen: So this goes back to what's the difference between what you need and what the law is?
Ben Moore: Correct.
Andrew Bowen: So you really need it no matter what.
Ben Moore: Correct. You're going to be on the hook for it no matter what if someone gets hurt.
Andrew Bowen: Do include yourself in that as a business owner?
Ben Moore: You have the right in North Carolina to exclude yourself under workers' compensation. I would highly recommend not doing that because, if you're a one-man show for example, and you get hurt, workers' comp will help pay for your disability. It will also pay for–God forbid, something happens to you–it will pay your state five years of wages. So it's important to remember you're sometimes risking a lot to save a little, especially if you're the salesperson of the organization–and Scott will get into that in a second with class goods–it's a very low rate. One of the things to remember about workers' comp, and it's…
Scott and I will laugh, and it's kind of a cheesy little rhyme, but it really will help every business owner out there.
Andrew Bowen: Alright, rhymes. I'm ready.
Ben Moore: Rhymes. Workers' comp is meant to be, the sole exclusive remedy.
The one thing to remember is it basically helps to protect the company, protect your assets, protect everything you worked for. And, Andrew, to your point, it protects the employees. It's a great coverage to have because it really will help those employees get back on their feet, if they're…
You know, there has a tendency to be some fraudulent claims in workers' comp, but I would say, and I can speak for myself and Burns, we have a lot of clients who have legitimate work comp claims with employees that it comes into play, and it really can help them out.
Scott Burns: But what we're going to see is if we can post those t-shirts of this whole remedy discussion.
Ben Moore: Absolutely.
Andrew Bowen: Wait, wait. Before you start talking, we need you to recite the rhyme.
Scott Burns: Workers' compensation…
Ben Moore: …is meant to be.
Scott Burns: Workers' comp is meant to be, the sole exclusive remedy.
Andrew Bowen: Okay, cool. You're free to speak now.
Scott Burns: And just to clarify that again if he didn't already say it: it's protecting the business owner because he can't be sued by his employees if they're injured, and it's protecting the employee. Back in the old preindustrial days, I mean, they didn't treat their employees very well; they didn't have any rights. Well, then if they get injured on the job, they are due their wages and the medical bills, and so it's protecting both. It's the sole remedy.
Andrew Bowen: Alright. So it comes back to the very first segment where we're addressing exposure in all ways, and this is addressing exposure through injury and whatever.
Scott Burns: And so that leads us over into kind of like what…how do you come up with the premium? How much does this cost, this workers' comp stuff? And so insurance is always about risk. A lot of the people that are listening to this podcast–I hope there are some people that are listening–that might tend to be more, maybe, in technology, a little bit more white collar exposures and the rating…workers' comp is based on your job duties, and they assign a class code to that. So for example, 8810 is clerical. 88742 is sales. And each one of those class codes in each state carries a rate per 100 a payroll.
So if you make $100,000 a year, and the code you're working in is a dollar a rate, then you're going to spend $1,000 a year, because it's per 100 a payroll. But typically for the sales and clerical, we're talking 20 cents, 40 cents, 60 cents per 100 a payroll. So a very, very small amount. Because, if you think about insurance, it's how much risk is there, and then that premium should be pointed to what the risk is. And then, therefore, what you need to do is when you look at your company, figure out what are all my employees doing, talk to your agent about that, and they will assign a code, and thus that will generate a premium for that exposure.
One thing you do need to think about is there's a term out there in the workers code that we call experience mod, and when you start out you may not have it. You have to generate $2,500 of premium to generate an experience mod, and what that is doing is the rating organizations in the state said, "How do we make people have a safe working environment? Well, let's affect their pocketbook if they don't." So they created this little rating system, and you start out with 1.00–kind of 1–and then based on what your operation is, if you have losses that are better than the average account, you get a credit. And so instead of paying $1,000 a year, they'll maybe give you 10% credit in your model, which will be 0.90.
Conversely, if you have a couple of bad losses, they're going to be like, "Uh-uh, we're going to penalize you." And that mod may be 1.20, and so instead of $1,000, you're now paying $1,200 because you have bad loss experience, thus trying to motivate you to have a safer work environment. And again, you're not probably going to see that right when you open your doors, but as you grow and your company gets larger, that becomes a big discussion item of what your costs are going to be. And also from the business reason, if you work for other entities, what they're going to ask for is if you apply a pre-qualification packet or whatever, they're going to be like, "What are you going to do for us?" You know…"What are your operations? What are your safety policies? And oh, by the way what's your experience mod?"
And if your mod is under…excuse me, over 1.0, they may kick you out because you don't qualify as an unsafe contractor. So that's a very important factor certainly as you grow in your business.
Andrew Bowen: So does this span across all industries or is it really just like manufacturing, and things like that…
Scott Burns: Everybody.
Andrew Bowen: Everybody.
Scott Burns: You got to generate 2,500 in premium in a year, and then once you got that threshold, then the state rating organizations…the insurance companies send all your payroll and your claims information in, and the state organizations calculate that mod for you.
Ben Moore: And the key thing, especially with the experience mod, is just to make sure you're kind of managing your claims, and your insurance partner, the agent you're working with, is managing as well. Because sometimes that is your advocate with the carriers, because they're the one bringing you and the carrier together. So they need to be your advocate to make sure those claims are managed correctly, make sure the employees…
The goal of any business owner is to make sure their employees get back to work in a healthy environment; that's their goal. So getting them a 'return to work' program like Scott was talking about, and helping all those really helps to manage your claims, but also helps you operate your business.
The worst thing that could happen in workers' comp is, if you start having frequency issues (i.e. a bunch of claims start happening at one time), you sometimes run into what we call a "me, too" claim. And so if one person gets hurt, and the next person is right next to them, sometimes it's a "me, too" claim.
Your goal–not that the employees are trying to take advantage of you!–but your goal is to try to get them back to work and be as open and nice as you can. Scott and I work on several accounts together, and we have one comp account in particular that the gentleman, the owner, did not want to go see this injured employee. We stressed to him the importance of that, because the employee really needs to know that you care about them. And you want them back, and you want them healthy.
That's important. You want to have…you want to show your employees that you care.
Scott Burns: We have had some business owners that have come back and said, "I don't want my employees to know much about the workers' comp system because then they'll try to take advantage of it."
Andrew Bowen: That doesn't sound like a terribly great boss.
Scott Burns: Yeah, exactly, and the absolute opposite is the correct approach. You want to educate your folks to know exactly what their rights are, and how this is going to go down. Because if you take the threat or the uncertainty out of it, then they're going to be more inclined to be a partner of yours during the process, versus an adversarial relationship.
Andrew Bowen: Right. Because you'd rather them come to you and say, "Hey, there's something that's not necessarily bothering me physically, but there's something that could be improved for safety or health reasons." Instead of saying, "I have no idea what's going on. So I'm just going to let this go until I get hurt or something goes wrong."
Scott Burns: And again, a lot of the folks listening on this podcast might have, you know, more of a white collar type exposure, office exposure, and you may go your whole career and never have an employee have an injury. But keep in mind that one of the exposures you may run into is employees run in vehicles, and as we all know in Charlotte when you're driving around, you can have an accident at any time, and that injury while on the clock would be a workers' compensation, so that might be something, you know, your biggest exposure as you get started, if you're not, you know, manufacturing something.
Ben Moore: Workers' comp is always primary, like Scott was talking about. And so there's auto wrecks, it's always primary. So it will start the…it will start first and you will try to…even if it's not your fault, even if the wreck's not your fault, you can try to get back your money from the other people, but the workers' comp is always first, so it's very important to have.
Scott Burns: One thing, different topic, is about especially when businesses that are getting started and have a growth trajectory, is about premium in terms of an audit standpoint. And so what you do to get a policy in place. We talk about those class codes, and within each class code, you've got to estimate what the annual compensation is for your sales rep and your clerical person.
Let's just say its $100,000 and $100,000 for all my staff. Well, then you are blowing up; you're doing great, awesome, and now you've doubled your staff for the last six months. If you don't…at the end of the 12 month period, they're going to look at what you thought you were going to do, and then what your 941 tax documents said, what you actually did. And if you do a lot more than what you’ve estimated, they're going to ask you to stroke a check for…it’s kind of similar to paying taxes if you will.
If you underpay, then the government is going to ask for more. Vice versa, if you really said, "We're going to knock this thing out and have a million on a payroll." And you only have $100,000 on a payroll, well, then they'll give you some money back. The ideal situation, especially as a new company, we would encourage you to work with your agent to sit down about six months in and say, "Hey, listen. We said we're going to do $200,000 of payroll. We've actually already done $200,000 of payroll. Do we need to change anything to try to minimize and start making those installment payments now, rather than getting a big lump sum when the audit comes in?" So that's something to think about on managing your cost.
Ben Moore: And now let's kind of switch gears and talk about what happens in a claim situation, because I'm sure business owners are curious: "Alright, I had a worker. They got hurt. What do we do?"
In North Carolina, you're required to file a Form 19, and the best advice I have to any business owner to get that form is to Google North Carolina NC Form 19. Pull it up; it pops off of the Industrial Commission's website who manages the work comp system, and pull that up.
You have to file that with the carrier for coverage to be true. It's something you could call your independent agent on, but it is filed directly with the carrier. You have to file that with the carrier, okay? What will happen in that process is the adjuster gets the claim. They contact the business owner.
They want to know what happened. We got an information sheet that shows everything on there, and also remember that the employee can get a copy of that Form 19. So while you may be upset with the employee, please be mindful that they're also going to see a copy of that. So keep it professional. So you send that form in, the adjuster gets involved, they come and they start asking you questions. What's the employee eligible for?
Okay, let's go to the extreme. Let's say, for example, they cut their thumb off.
Andrew Bowen: No!
Ben Moore: Oh, man it's crazy. In North Carolina, they're actually entitled to…the last time I checked it was 60 weeks of pay.
Andrew Bowen: For a thumb?
Ben Moore: For a thumb. Believe it or not, it's weird. What happens in these cases…the Industrial Commission has basically…because you've got to remember, workers' comp is all statutory based. So whatever the law says, they typically…the adjuster has to follow that pretty closely because it's law. So they have to pay out what they feel this amount should be based on that, and it's approved by the Industrial Commission. The employee is eligible for medical payments, and they're also eligible for indemnity. (i.e. You're paid during the time you're out.)
And there's also what we call rating. So if, for example, you have an employee that, let's say, pulls their back, and they get a 40% rating–meaning their back is no longer 100% good, it's now 60% good. They get an amount of money based on that rate. And so the claims process with a workers' comp can be very arduous sometimes, but my advice is there's no dumb question to ask an adjuster. If you have a question on the adjustment, Can the employee do this, can the employee do this? Feel free. They've heard more claims, more questions, and more ridiculous things than you can ever imagine, and they're experts at it, they really are.
Scott Burns: And I would say that this is probably the one line on the day-to-day basis that we spend the most time with their business owners on, and frankly, it's one of activity and frustration. And the summary here is you want to make sure that the people coming in your company are vetted properly. So you got some good references. Once they're on board, you want to make sure you have a safe working environment, and they're trained properly. And then third, if something ever does happen, you want to go ahead and have good communication with them, support them; it's not a you against them type of situation, and try to get them back to work as quickly as possible.
If you have those basic tenets at what you do, you should be in good shape workers' comp wise. But it is a big issue; it can be one your biggest line items for your business as you grow out there, certainly in the insurance portfolio.
Ben Moore: Absolutely, the one last thing to talk about that I forgot to mention on the claim: Don't forget you also have the right to direct them, so they can…if you want to send them to your doctor, or if you have an urgent care that you prefer working with, you can send them to your urgent care. You have the right in workers' comp to dictate where they can go. So always remember that, so you can kind of send them to your doctor, because sometimes if they go to their doctor, that claim can be spread out a little bit longer. And you can, again–this is another great question run by the adjuster–say, "Hey, I don't really have a go-to, let's say, on the South End, is there a good urgent care to send them to? Or even outside Charlotte, who's the best one to go to?" And that's the important thing, absolutely.
Andrew Bowen: Alright. A workers' comp policy is the one source remedy, what was it?
Ben Moore: Workers' comp is meant to be, the sole exclusive remedy.
Andrew Bowen: Man, I was not close. Okay…terrible memory.
Ben Moore: It's one of those things where I learned it when I first started insurance, and it has proven me well as I have learned throughout the years.
Scott Burns: How often do you drop that on your clients?
Ben Moore: Surprisingly more than you think…Some of them even remember it. I've been working with them 10 years, they'll remember it.
Andrew Bowen: Well, as long as they have workers’ comp insurance, right?
Ben Moore: It’s the same idea.
Andrew Bowen: Right, great. But we're going to wrap this segment up. Listeners, stay tuned because next time we meet with Scott and Ben…in about five minutes, not to you but to me…we'll be talking about cyber risk and what to do if your business faces a cyber threat on the Internet, and yes, there is insurance for that so stay tuned and tweet us @CBRbiz with any questions or comments. This has been CBR’s B2U podcast presented by CBRbiz.com, we mean business. Right, still mean business, guys?
Ben Moore: Absolutely.
Scott Burns: Still do.
Andrew Bowen: Alright.