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.

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, LeastsSaff 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 (EOR) is very similar to a Professional Employer Organizations (PEO) in how they both provide work comp and payroll services as a turnkey service. EOR’s enable staffing companies to cost-effectively outsource human resource management services including workers’ comp. In turn, a staffing firm can concentrate on the revenue-producing part of the business. Leaststaffs’ preferred EOR’s (like PEO’s) services all 50 States.

EOR’s became more popular among staffing companies as a workers comp/ payroll back office solution (versus PEO’s) as carriers pulled back from the PEO market after the recession of 2008. Carriers generally feel more comfortable with the EOR legal relationship to the employee. Also, many PEO’s do not work with staffing companies less that 3 years old too.

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

Responsibilities 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
  • Manages payroll tax compliance
  • Administers unemployment insurance claims

Hundreds of staffing companies use EOR’s and they service all 50 States. Leaststaff only works with a few EOR’s because Leaststaff only uses ones that are very experienced in the staffing industry and have stable comp carrier relationships. Some EOR’s are not experienced in the staffing industry and unless they have at least 50 other staffing should be avoided.

State Sponsored Work Comp Program (aka Assigned Risk Pools)

A state-sponsored system—frequently referred to as a State Fund 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 private carrier, PEO’s or other programs. Employers in high risk industries or with high experience modifications (X-Mods) are frequently turned down. All States are REQUIRED by law to offer some kind of Workers Compensation to all employers. The downside is, usually, State sponsored Programs are not the most economical.

Pay as you Go Work Comp Plans

Most of LeastStaff workers compensation programs are offered as “pay-as-you go” payment plans. With the PEO or staff leasing 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.

Captive Insurance Programs

Captive programs are more suitable for large staffing companies and provide workers’ comp coverage that usually cannot be obtained through the traditional insurance market, thereby reducing the high cost of insurance to staffing companies in certain high risk codes. The most common use of captive insurance is to provide liability coverages for lines of business, such as workers’ compensation, that have regular and predictable loss payments. Many captives are based outside the US and receive favorable tax treatment which helps captives offer lower comp rates. Advantages of captive programs.

  • Reduced costs,
  • Enhanced risk management
  • Greater control over the insurance product and direct access to the reinsurance market for excess protection.
  • The flexibility to cover a wide variety of risks. Virtually every risk underwritten by a commercial insurer is provided for in a subset of captive insurers. Examples include: property, workers’ compensation, casualty (general, professional, auto liability, and product liability), and employee benefits such as long-term care and supplemental life insurance plans.

Work Comp Premium Deductibles

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.

Administrative Services Org. for Workers Comp. (ASO)

Unlike a PEO, there is no co-employment relationship with an ASO. An ASO handles, workers’ comp claims, payroll and human resources administration, similar to the ADP model. The PEO co-employment solution is viable for many small to medium sized staffing businesses, but for many companies the co-employment paradigm (which is part of the PEO solution) does not represent the best option. As such, some staffing clients have elected the ASO option, where in many cases, the ASO administers the client’s workers compensation as well all their payroll function, but NOT in a co-employment relationship

Direct Carrier

This option for workers compensation is usually for staffing companies with good workers’ comp loss history. Some leading insurance companies include AIG, ULLICO, Travelers, and Pinnacol. As a result of selecting better staffing companies, their rates are usually more competitive than a PEO, and much less expensive than a state fund. Direct carriers will usually require:

  • 25% down payment on the annual premium and may finance the remaining 75% over 6- 9 months.
  • An annual, on-site audit that will review class codes for accuracy—rate discrepancies and payroll levels.
  • Less interaction during the year with your staffing company because the policies are generally not “pay-as-you-go.” An audit is likely to be intrusive to your operations and audit premiums unexpectedly substantial.
  • At least 3 years of good loss history.

Other Services

Other insurance offerings: In addition to our workers’ comp offerings, LeastStaff can also work with General Liability agents to secure all different types of business insurances for your staffing company need.

Specialized payroll and human resource services: LeastStaff has relationships with payroll companies that specialize in processing high turnover staffing payrolls. Those services include:

  • Payroll Tax compliance: Manage one of the major burdens of payroll. We eliminate your risk by collecting and paying taxes, while ensuring state and federal tax compliance.
  • Direct Deposit: Make payroll easy for the employer and banking simple for the employee. Our online access makes it easy to view and update important information.
  • On-Site Check Printing: Print paper employee paychecks in your business. Instilling this practice is great for you and helpful for employees who do not have access to direct deposit or who prefer a physical check.
  • Complex Payrolls: Delegate responsibility for complex payrolls. We can facilitate multi-state payrolls, job costing, certified payrolls, multiple pay rates, department allocations, holiday pay and overtime.
  • Wage Garnishments: Managing garnishments can be a labor-intensive process that represents the potential for awkward moments between manager and employee. Payroll solutions relieve the company of this burden, while ensuring that appropriate garnishments are collected and paid, and reporting is completed.
  • Per Diems/Non-Taxable Reimbursements: Makes it easy for you to make special pay arrangements, as needed. In addition, employees can enjoy speedy and accurate processing of per diems and reimbursements.

FREE Workers’ Comp Quote

Let us give you a FREE Comp Quote. We love to beat the State Funds Comp Rates and to save you money. And we’ll get it to you in 24 hours.

Click Here

Contact Info

  • Available 24/7 to help you get better rates, ASAP! Request a Quote -- Call Us
  • Address: PO Box 30476, Bethesda, MD 20824
  • Phone: 202-302-1212