Budget Your Business
Budget Your Business - budgeting for every aspect of your small business - is a show for small business owners with less than $50M in revenue. If you are looking for actionable advice, practical tips, and techniques to budget every aspect of your business, this is the podcast dedicated to you. We host finance experts, subject matter experts, and small business owners to share their perspectives on planning for your business. Think of a deep dive for every part of your business and how to plan for it. Budget Your Business is hosted by Scott Geller who will share his experience working with corporations and small businesses, and guide you down the path of planning the financial future for your small business.
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Budget Your Business
Making Workers Comp Clear, Valuable, and Maybe Even Fun with Kevin Ring
Unlock the secrets behind effective workers' compensation insurance with expert insights from Kevin Ring of the Institute of Work Comp Professionals. Journey with us as we explore how this essential coverage acts as a financial shield for both employers and employees. Kevin draws from his extensive knowledge to unravel the historical significance of workers' comp and its crucial role, even in states like Texas where it's not mandatory. Expect to learn why businesses prioritize this insurance to avoid legal pitfalls and ensure comprehensive coverage beyond what typical health or short-term disability insurance offers.
Embark on a path through the complex landscape of workers' comp insurance by understanding the value of partnering with independent insurance agents. We discuss the importance of accurate classification codes and how they can significantly impact insurance costs, especially for staffing companies with temporary employees. Kevin shares actionable strategies to maintain proper classifications and avoid costly surprises during audits. Learn how a certified workers' comp advisor can be your guiding light, keeping your business protected and ensuring a seamless reintegration of injured employees back into the workforce. Tune in for practical takeaways that can optimize your approach to workers' comp insurance, making it a powerful tool for safeguarding your business.
Book Recommendations:
Sandy Koufax: A Lefty's Legacy by Jane Leavy
You Are an IP Company: The 12-Step Plan to Increase Your Intellectual Property Influence, Impact, and Income by Kary Oberbrunner, Katherine Rubino
Find out more about Kevin Ring:
even for employers that are not required to purchase it. There is no insurance that does more for less money than workers' compensation.
Speaker 2:Hello and welcome to Budget your Business, the podcast for small business owners who want to learn how to financially plan for every aspect of their business. I'm your host, scott Geller. Today, I'm joined by Kevin Ring of the Institute of Work Comp Professionals to talk about workers' comp insurance. Welcome, kevin.
Speaker 1:Hey, it's great to be with you, Scott. Thanks so much.
Speaker 2:Absolutely so, Kevin. For folks who are meeting you for the first time, could you share a little bit about what you are and what you do, or maybe what the Institute is?
Speaker 1:Yeah, about what you are and what you do, or maybe what the Institute is? Yeah, so I'm the lead work comp analyst at the Institute and our primary business is to train, certify and mentor insurance agents in how workers comp works so that they can help their clients get better results. And, as I'm sure we'll talk about more, the reason that we have to do this is that both agents and employers have really been trained that comp is comp is comp and there's nothing you can do about it. And what we know, and we help agents understand, is that nothing could be further from the truth that employers really, with workers' comp, have more control over what they pay than any other type of insurance that they buy, and so we want to help them get great results.
Speaker 2:Interesting. Yeah, definitely going to be digging into that more here, kevin. Let's start with a softball one here, but what is workers' comp insurance? Ball one here, but what is?
Speaker 1:workers' comp insurance. So you know, if we go back, let's say, 150 years, if you got hurt at work you were on your own. If you wanted your employer to help pay for that injury that you suffered, you were going to have to get an attorney and try and get that money. That's obviously, you know, way tilted in favor of the employer. But in cases where the employer did something a little nefarious or maybe had an unsafe workplace, they could wind up losing an awful lot of money through those lawsuits if they were successful.
Speaker 1:So in the early part of the 20th century, in the first law that was passed and then was upheld by the courts, I was in 1911 in Wisconsin where we created what is generally referred to as the Great Compromise, this idea that employers would generally be presumed to be responsible for injuries that employers suffered, or employees suffered in the course and scope of their employment and in exchange, or employees suffered in the course and scope of their employment and in exchange they would not be able to try and recover large sums of money for negligence and that sort of stuff. And so that was the initial creation of workers' compensation as it exists in the US. Insurance crops up around that over the years, every state but Texas now requires most employers to carry workers' compensation insurance, and it's a great protection both for employees and employers, so that employees know that they're protected if they suffer an injury and business owners can know that they aren't going to be financially devastated when that happens.
Speaker 2:Interesting. So for taxes, then typically most businesses still get workers' comp, even though it's maybe not required.
Speaker 1:Yes, most employers do, and there's another type of insurance that employers can purchase that acts somewhat like workers' compensation, but some employers do choose to go completely naked, but that's relatively unusual.
Speaker 2:You kind of answer this with maybe not everybody in Texas, but for the most part every business needs workers' comp.
Speaker 1:I would say that certainly any business that has any employees needs workers' comp. The requirements of who has to buy it by law vary from state to state. Here in North Carolina you have to have three or more employees, but then there are some states where any company has to have workers' comp, no matter how many employees you have, even if it's just the owners. But even for employers that are not required to purchase it, there is no insurance that does more for less money than workers' compensation. You have unlimited medical payments. Most employees will receive two-thirds of their average weekly wage if they can't work, along with other benefits. Business owners, when you have employees, if you choose not to buy workers comp because you're not legally required to, what you're really doing is choosing to self-insure that If someone does get hurt working for you, are you in a financial state to cover that and more if they get an attorney? And the answer for most employers is probably not.
Speaker 2:And when you say they're choosing to self-insure, I would imagine most of them aren't actually self-insuring, it's just the act of they're going to have to self-insure.
Speaker 1:They're probably not putting away money to self-insure to actually self-insure, no, I mean, if you're too small to be required to buy a workers' comp in your state, you do not have the financials to officially self-insure in the way that, say, a Walmart or Costco does in your state. What I really mean is that when you don't buy the workers' comp, you leave yourself open to liability, but without the insurance to cover it, Without the financial support.
Speaker 1:Right If your employee gets injured and they get an attorney and say this was the fault of my job, and at the very least you're going to have to pay an attorney, which is not cheap and then if you lose and so it's certainly something that we would recommend every business carry, especially if they have employees- so how would this differ from short-term disability?
Speaker 1:Well, short-term disability would only look and say, oh well, you know, my employee, my one employee, has health insurance and I'm not required to buy workers comp. You know, many health insurance policies specifically exclude occupational injuries and that's probably not going to be a problem if someone sprains their ankle or needs a couple of stitches, their ankle or needs a couple of stitches. But if something substantial happens where now humans are looking at this and the insurance company and saying, you know, oh, is this really something we should be paying for? Then their health insurance might not pay for it. The disability, short-term or long-term, is something that can help to replace your wages and as a business owner, it's something that you probably want to look at having anyway, because if something were to happen to you, then how are you going to protect your income while you have to be away from the company?
Speaker 2:Right With that said, how do I get workers Workers?
Speaker 1:So we would certainly recommend working through an insurance agent. They're just like with pretty much every form of insurance. Today there are websites you can go to and fill out a form and buy insurance for your company, but by working with, we would recommend working with an independent insurance agent, because they have access to a variety of different insurance companies and can find one that is a good fit for you. Selfishly, I would recommend that folks work with a certified work comp advisor, which are the folks who have the designation that we offer, because we know that they understand how workers comp works. But every town has insurance agents and I would recommend looking for one that you know, that touts you know expertise in commercial insurance and has good stories to tell about successes they've had with their clients.
Speaker 2:Okay, and this is similar. So let me ask you, if I have an agent that provides my like my no insurance, then I could go to that individual and say, oh, what about my workers' comp? And that person may or may not be able to help me with that.
Speaker 1:Yeah, more than likely they will, and at the very least they'll know someone who can, if they can.
Speaker 2:Okay, but to your point, make sure you're asking, or it'd probably be a good idea to ask are they certified in workers' comp?
Speaker 1:Yeah, and you know, especially if, if you have, you know a more you know complex business. You know I'll, you know, with the, the Institute, our workers' comp premium is is $900 a year. You know we're a largely clerical business and we work with a great agent. But business and we work with a great agent, but that's probably not you know a hundred percent necessary for for a business like ours. But you know, as you, as you start to get North of, of 10 employees, you know just like, just like every business, you know half, half the people are below average and half are above average and and identifying those can be challenging. And so that's why I say you know, talk to them about what you know.
Speaker 1:You know how they deal with workers' comp, you know what experiences do they have helping. You know businesses out of you know out of challenging situations. And, most importantly, you know don't just shop it on price and people are frequently do that because workers' comp is the same for everyone In your state. I mean, the policy is the same. If someone falls off a ladder, they're going to get the same benefits from insurance company A or insurance company B. It's different than, say, property and liability insurance, where the terms of the policies may be different, because the workers' comp policy is mandated by the state, and so it's tempting to just call a half dozen agents and see who comes in with the lowest price. But working with someone that you trust can help you when you have challenges is going to be more important.
Speaker 2:Right. So what you're saying basically is if you're paying less, then you're just not getting as much coverage.
Speaker 1:in this case, Well, with workers' comp specifically, you're not getting less coverage, you're buying exactly the same coverage.
Speaker 1:But what I would suggest is, I would imagine that the vast majority of people listening to this, who are business owners, believe that they are among the very best at what they do in their area and they know that there are other people who do what they do, who charge less money and they lose jobs or business to people who are selling a cheaper product or service while essentially representing it as the same thing. And this is not a situation where insurance agents themselves are more expensive. It's not just I'm selling my services for more than my competitor, it's just that you know in most cases there's going to be, you know, multiple different insurance companies involved and insurance agent A is offering you a policy and it's $5,000. And insurance agent B is offering you the same policy, because it's a worker's comp policy from a different insurance company, and it's $4,800. If you believe that insurance agent A, with a $200 more expensive policy, is better for you and your business, then you're going to be better off there than saving that $200.
Speaker 2:Gotcha Okay, and how much? Can I determine how much it's going to cost?
Speaker 1:So the number one thing that's going to determine how much it costs is what your business does. So in every state except for Pennsylvania and Delaware there's between 500 and 600 different classification codes that your business can go into. That describe nearly everything a business can do. So that's the first thing is what classification do you go in? And this is one of the things that your agent needs to be reviewing, because certainly withets down into parts, that's going to be one class code. But if I'm buying steel and then melting it and casting it, maybe I'm turning out the same part that the computer-controlled equipment guy is turning out, but if I'm forging those, it's going to be a different classification. Are you sure you're in the right one? And classifications change over time. It's only been in the last 10 years or so that they got rid of the class code for making whips for horse and buggies.
Speaker 2:That could be from a while back, couldn't it yeah?
Speaker 1:And also businesses change right. We saw this a ton during COVID. But you know a business introduces a new product with a different process or you know any number of things that how a business can change. You know, making sure you're in the right classification, and then the insurance companies will have rates attached to that. And that's where you can see variation between insurance companies, where you know one insurance company might say we're going to charge, you know, a dollar per hundred dollars of payroll. Another one might say we're going to charge, you know, a dollar 10. And that's just based on their you know their kind of backend math on what price they're going to offer and what their appetite is. Some insurance companies pretty much exclusively love construction, others are more in manufacturing, others want more clerical type stuff and they'll generally have higher rates for the types of businesses they aren't so enthusiastic about, for whatever reason.
Speaker 2:Understood. How else can I control the cost of it?
Speaker 1:So I was talking when we were discussing classifications. You know the insurance company might say the rate for this classification is $1 per $100 of payroll and the way that you pay for workers' compensation is you estimate what your payroll is going to be for the next 12 months and the insurance company you know you separate that out. You'll have your clerical folks, maybe some outside sales, and then people in you know in the main class code of what your business does and then they tally up your premium. They say it's going to be $5,000. So you pay that throughout the year and then at the end of the year, after your policy expires, the insurance company is going to come back and review your books to see how much payroll you actually had. And that sounds very simple. I said I was going to have $200,000 of payroll. I wound up having $300,000. We make that adjustment.
Speaker 1:However, there's over a dozen different pieces of money or substitutes for money that employers may pay their employees that they don. You do not pay workers' compensation premium on the premium portion of overtime pay. So if an employee gets paid $10 an hour, they work overtime, they get time and a half, so they're getting $15 an hour. That extra $5 an hour. You don't have to pay workers' comp premium on. Have to pay workers' comp premium on. But if the employer doesn't know that, they don't keep the records or they don't give those records to the insurance company with that information, they're going to wind up paying workers' comp premium for that. So the premium audit is a big, big place for people to make sure they're paying exactly what they owe and understanding those rules, which is part of why you need to choose a good agent who knows how that works, because it can be difficult for an employer to navigate on their own because in large part, the rules around this are behind a paywall. That's not true in every state, but for most states it is.
Speaker 1:And then you have the question of employee injuries. What happens when one of your employees does get hurt? And this can be a complicated process for employers that haven't really thought about it. They'll tend to tell their injured employee oh well, I'm really sorry you got hurt. So I guess just go to the doctor and come back when the doctor says you can't.
Speaker 1:And the challenge there? There's multiple challenges, but the big one is, first of all, if you just tell someone to go to the doctor, where are they going to go? If they have a personal physician, they'll probably wind up the personal physician. They may go to an urgent care, or the worst case is they go to the emergency room. Of course, I'm obviously not talking about a situation where there's lights and sirens. I'm talking about the sprained ankle or the strained back. You know the kind of place that. You know the emergency room is the worst place in the world to get something like that treated, and so in the vast majority of states, the employer actually has the right to say to an injured employee I'm really sorry you got hurt. We're going to send you to Dr Bob you know a doctor that they have designated and it's very likely, if you haven't done that, that the insurance company sent you a little poster that you probably have up in your break room talking about how to report injuries, and there are names of clinics you know on clinics on there, which is a good starting point.
Speaker 1:But then when someone goes to the doctor, the doctor is going to say, ok, we have a sprained ankle. It's going to be probably two weeks before you can fully use your ankle. What do you do? Oh well, I'm on my feet all day, stocking shelves in a grocery store or painting or whatever it is. Well, you're not going to be able to be on your feet all day for at least two weeks. So here's a two-week out of work now. So now that employee is going to be out of work for two weeks, they're going to get lost wage payments from the insurance company as a result.
Speaker 1:Then they go back to the doctor and who knows if the doctor is going to clear them then and I imagine most of the folks listening have heard of the concept of light duty or return to work. We talk about it as recovery at work and when an employee gets injured, it's really, really important that we bring them back as soon as possible to do anything. But there's multiple things that have to happen to make this work. First of all, the doctor they're going to has to know you're willing to bring them back, because if the doctor can't be confident that their employer is going to give them work that respects any restrictions that the doctor may prescribe, then they would rather just send them home rather than put them at risk of a more severe injury. So you've got to communicate that to the doctor, which is part of why it's great to have a strong relationship with the doctor that knows you, not just that one of your people is randomly showing up in their office.
Speaker 1:Then the second thing is the employer needs to come up with things that an injured employee could do, and it can be anything from clerical sedentary work to anything up to whatever restrictions. They're know every injury doesn't result in someone who can only sit at a desk. You know, this person has a sprained ankle, so maybe they can't be on their feet a lot. That doesn't mean they can't move, you know. And so you have to to brainstorm with your employees. You know what's not getting done around here.
Speaker 1:And and another thing I'll point out that's so important about this idea of recovery at work, especially right now, because unemployment is very low pretty much everywhere and it's very, very difficult to find people, much less good people.
Speaker 1:And the studies have shown that the longer an injured employee is out of work because of their injury at work, the less likely it is they're ever coming back. And when they're out three months, it's only 50-50 that they're ever coming back to the job they were in before they got hurt. So, as a business owner, think about what would happen if your best, most skilled employee just disappeared. How are you going to replace them? It's probably going to be difficult and probably more, and it's definitely going to be expensive. Probably you're going to wind up paying more than you were paying before. And then all of this leads through to businesses that are large enough to qualify for experience rating, onto your experience mod, which is measuring your performance in workers' comp against other businesses like yours, and then is a component of the premium calculation. So when you can effectively prevent and then control the injuries that do happen, all of that is better and your costs are going to be lower.
Speaker 2:Interesting A little bit different direction here, kevin. I work with a number of staffing companies and to me a staffing company is kind of interesting because you could have a whole lot of quote employees that count. But for a relatively kind of smaller company, do you have any thoughts or recommendations for how a staffing company should address their workers' comp?
Speaker 1:I sure do. So I mean the people who work in the office, the people who I would say are operating the staffing company. That's pretty black and white. They are likely clerical. You may have some outside salespeople if you have people that are going out and actively soliciting clients.
Speaker 1:Where staffing companies get interesting and difficult is with the temporary employees. So with classifications it is really challenging, and it's challenging for a variety of reasons, but let's talk about classifications. So when a staffing company gets a phone call from a client and they say we need X number of people to do this thing next week, it is a best practice for that staffing company to ask the client, the receiving employer, what workers' compensation classification do you use for your regular employees who do this work? And the reason that question is important is that, with the exception I keep I've said this like four times the exception of Pennsylvania and Delaware, who handle this differently, although it's still important there, but it's a little bit different there but the exception of Pennsylvania and Delaware the staffing company should use the same workers' compensation classification that the employer, the receiving employer, is using. And the reason you want to ask that question is that if you don't ask that question, then when the premium audit rolls around at the end of the year, the premium auditor is going to look at all of these records of all of the work you had for the year with your staffing company and they maybe you've taken a guess at what the class code would be, but otherwise they are going to be left with whatever information you have about that job to determine what they think is the correct classification.
Speaker 1:The problem or the challenge with that is that it's not always cut and dry and they aren't going to your client sites to see the work that's being done, and so it's not that hard for an auditor to pick an incorrect classification. That's maybe more expensive, because of course they're going to default to more expensive but plausible. I'm not suggesting they're going to try and put it in something that's 10 times as expensive, but if you have a record from your client, you're just an email saying you know I need 10 of these people. They're going to be doing this. We use workers comp class code this.
Speaker 1:Then the auditor has to use that code so long as it's not, like you know, a manufacturing job and you're trying to put them in clerical, that's obviously not going to be correct. But but the rules say you use the code that the receiving employer is using. But the only way you can really enforce that is if you have information about it. Otherwise, absent that information, you want to be talking to your agent about what it is these people are doing and what classification they think is appropriate. Because I know from talking. We have a few agents that write a lot of staffing companies and they say that they often aren't collecting that information, that it's just too chaotic, and so you do the best you can do in the absence of perfect information.
Speaker 2:Okay, yeah, I mean you don't want an auditor coming in. Essentially, you don't want an auditor coming in and classifying it for you. You want to be a little more proactive, and it probably helps you plan for what that's going to look like as well if you do that.
Speaker 1:Right, because then you know if you're getting that information from the employer or you're asking your agent, then you can go to your agent and say, hey, I've got you know, I'm going to have $5,000 in payroll for this classification. What's that going to look like in payroll for this classification, what's that going to look like? And if you're asking for that information up front, then it can help you price the job right. So if you find out that the worker's comp cost for this is going to be $2 a hundred instead of a dollar per hundred, then you can maybe build that into what you're billing the client and at the very least you can have a much better idea of what your costs are looking like through the year, rather than being surprised at audit time.
Speaker 2:Right and that's never a good place to be is going through an audit and finding out that you owe another depending on your size six to eight figure adjustment to what you've already been paying Right, right and and it's.
Speaker 1:It's so, so important to be keeping the records. And it's even more difficult with staffing companies because it can be so variable and, of course, staffing companies are different. Some of them are in a very specific niche, Some of them are more general, where things are really all over the place. But keeping, at the very very least, keeping good records of you know every one of the placements that you have, you know who hired them, what were they hired to do, you know how much payroll was there is going to help everything. You know everything. Be as close to right as possible.
Speaker 2:Okay. Well, kevin, I have a feeling that we could probably continue talking this conversation for another, maybe even a couple hours, but I don't want to take up too much of your time today and probably need to start wrapping it up here. So, in every show, we like to wrap it up with one to three immediate takeaways that our listeners could literally put into action as soon as they turn off the podcast, and it might even be something that you already mentioned, that you just want to make sure people are aware of. But what do you have for us today?
Speaker 1:So I would say the number one thing is to make sure that your business is classified properly on your workers comp, and if you're 100% in clerical, your job is done. But if you are in a different type of business, it's certainly worth taking a look at your insurance policy and then just dropping a line to your agent and saying, hey, it's been a little while since we've really talked about this. Just was wondering if you would double check and make sure that the classifications we're in are still correct. Getting that right is the foundation to everything else. It's not the only thing, but it's certainly one of the foundational pieces.
Speaker 1:The second thing is the critical importance of bringing injured employees back to work as soon as possible, and there's really only three reasons an injured employee can't come back to work within three days and this was identified by a research paper from a medical society is that they're hospitalized, they're contagious, so it's unsafe for them to be at work, or they're medicated in a way that's unsafe for them to get to or be at work.
Speaker 1:If none of those three things are true, then that worker is almost certainly capable of coming back to do something, and then it becomes incumbent upon the doctor to send them back to work and the employer to find work for them to do. And the third, and maybe most important thing, is to ask questions to understand that you can control your workers' comp costs. You do not just have to blindly accept what the insurance world throws at you. Ask questions, challenge the assumptions that have been made, and we could talk about this for another three days, much less two hours. But if you're asking those questions, you know whoever it is you're working with is going to have to to think about things you know a little bit more completely to respond to those questions, because it is. It is very easy for mistakes to happen.
Speaker 2:Those are great three pieces there. Let's make sure your business is classified properly, bring employees back as soon as you can and then I feel like your last one ask questions to make sure you understand all of it. I like to tell people that, for everything, right, just ask questions and it's not going to hurt, right? It's okay to not know everything.
Speaker 1:Right, and yeah, you're exactly right. That's true in every corner of your business. Ask questions.
Speaker 2:Well, Kevin, I enjoy a good podcast or a book recommendation. What do you have for our audience?
Speaker 1:So I got one fun book for a potential niche audience and then one book that I just finished that I think is probably close to mandatory for all of us to read. So I just wrapped up Jane Levy's biography of Sandy Koufax. If you are a and I think it's just called Sandy Koufax, I don't have it with me, but if you're a baseball fan, it's fantastic. It's a great, great telling of his very unique story From a business perspective.
Speaker 1:There's a new book out. It's called you Are an IP Company as an Intellectual Property, and it was written by I'm going to mess up this guy's name Kerry Oberbrunner, and Catherine Rubino, who's an intellectual property attorney, and the underlying message in that book is that the vast majority of companies develop a substantial amount of intellectual property and they dramatically undervalue that intellectual property, whether it's unique processes that you've created in your business, unique ways of communicating what it is you do. It goes through a dozen different examples, everything from Lego to Taylor Swift and how they have protected their intellectual property. It offers some really novel ideas to protect your intellectual property in ways that are not as expensive or time-consuming as going through the full-fledged federal trademark or copyright or patent process, and for me. It got me thinking quite differently about what we do and the intellectual property that we have. Because so many businesses, there's a tremendous amount of your enterprise value that is in your intellectual property, not just in your revenue.
Speaker 2:That's a great one. I can completely see that and even kind of relate to myself, right, like everything I do is a consultant, right, and especially as a consultant. It's what you know and there's probably more there to your point. There's probably a lot more there IP-wise than people realize or get valued.
Speaker 1:Right and processes that you develop. And even if I mean it's like what we're talking about with workers comp, you know the policy is the same no matter what, but the way a particular agent deals with it, the way that they deal, the process they have and naming that process and the way that you illustrate what you do, because as a consultant you have a lot of great ideas, but it's very likely that none of those ideas on their own that you're the first person to ever think of it but you're the first person to ever, ever put these sets of ideas together in the particular way that you do it, with your particular approach.
Speaker 1:And most businesses are the same, even with a home builder. The way that you approach going from you going from finding a client to finding out what their dream home is going to be, to actually finishing it hammering nails is not new, but certainly the path that you take is intellectual property and can be protected, and when it's protected it appears more valuable to everyone.
Speaker 2:Well, Kevin, where can people find out more about you online?
Speaker 1:So our primary website is at workcompprofessionalscom. There's a lot of good information there. Everybody has a blog. It's more a collection of articles that we add to at least a monthly. You know, forms that employers can download. We have a program that we rolled out earlier in 2024 called Locked and Loaded Workers' Comp Training, which is a workers' comp program specifically built for employers to help you learn a lot more than what we've been able to discuss today about how workers compensation works, and there's a link on the homepage at Work Comp Professionals and you can also go to lockedandloadedtrainingcom to see more about that. Yeah, that's where I would go.
Speaker 2:Great. Well, I'll definitely share that in the notes so that people can go out and learn a little bit more about the workers comp. Thanks for joining me today, Kevin.
Speaker 1:Well, it's been a pleasure, Scott. Thanks for the conversation. It's always fun to talk about no-transcript.