As small business owners, we are always under pressure to do more with less. In this difficult economic environment, careful review of your

workers compensation program may reveal opportunities to reduce expenses,while offering better protection to your employees.

Workers’ compensation insurance protects employees against the risk ofsustaining a job-related injury. It covers medical expenses and disabilityincome benefits for an employee whose injury is job related.

Premiums are assessed according to payroll and depend on the industry

classification of your business. An advertising firm would pay lower

workers’ compensation premiums than a construction company, reflecting therelative risks of injury to employees of those two businesses.  That iswhy it is important that you classify employees accurately for their jobdescriptions and wages. If you are adding new employees to your payroll,be certain to update your workers’ compensation coverage to ensure thatthe new hires are covered with the correct job classifications.

You may be able to reduce your workers’ compensation premiums. First, askyour insurance company about merit-rating credits.  In most states, smallbusinesses that have favorable claims experiences may be entitled tocredits toward their premiums. 

Second, consider adding a deductible to your workers’ compensationpolicy.  Workers’ compensation typically covers from the first dollar of

losses, but most states allow deductibles that will reduce your costs.

Consider foregoing coverage for yourself or other directors of thecompany.  Many states let small business owners and certain officers anddirectors opt out of their workers’ compensation policy.  This would lowercosts, but would leave you without benefits should you be injured on thejob.  This may make sense if you have medical insurance to pay for medicalexpenses incurred in an on-the-job injury or other means of financialsupport, such as a disability income policy, if you or any of yourdirectors and officers were medically unable to work.

Finally, cost shifting, which raises your workers compensation costs,

occurs more frequently during economic downturns. The National Council onCompensation Insurance reports that medical losses constitute more thanone-half of total losses attributed to workers compensation insurance. Anemployee who is without medical insurance would easily be tempted toreport an injury as job-related in order to avail himself of the medicalcoverage. Likewise, as deductibles and co-payments rise,employees who are under financial stress may face the same temptation. Theshift of medical costs to workers compensation insurance increases theburden on small business. Mitigate this risk by using a higher-deductiblemedical plan (first dollar losses are always the most expensive) and thenfund the deductible on behalf of the employees.

Careful review of your workers compensation insurance coverage will allowyou to use your small business' resources in the most efficient way toprotect your employees. Review your coverage annually to ensure that yourcoverage is appropriate.