How to Cut Workers' Compensation Costs

HR Resource
October 10, 2012 — 1,656 views  
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How to Cut Workers' Compensation Costs

Workers' compensation can be a very large portion of a company's operating expenses. In many cases, workers' compensation can cost a company more than 20 percent of its average annual payroll costs. While a business must have a workers' compensation program in place for legal reasons, it's important to find effective ways to reduce compensation costs. The following guide provides legal tips and tricks on how to cut workers' compensation costs.

Employees are one of a company's largest liabilities. If an employee is severely injured while he or she is at work, a company may be liable for millions of dollars in healthcare fees. If this individual ends up in a coma, the business will be responsible for that person's lifetime benefits.

Fortunately, there are several effective ways one can reduce workers' compensation costs. In many cases, it may be possible to hire workers through a third party staffing service. If a company hires workers through a staffing service, the staffing service will be liable for all compensation.

This can be beneficial in several significant ways. If a staffing company is set up as a shell company by a business, the main business will be effectively shielded from any lawsuits resulting from an accident. By keeping only a small amount of capital in the staffing company, it may be possible to avoid paying out a huge settlement in the event of a serious accident. If needed, the staffing agency can declare bankruptcy. However, the main business will continue to operate as normal. Another shell company that serves as a staffing agency can be created by the main business.

It's also a good idea to have a very strict drug and alcohol policy. If an employee tests positive for drugs or alcohol after an accident, it may be possible to deny that individual's workers' compensation claims.

In addition, there are effective ways to manipulate drug and alcohol testing to ensure a positive test result. For example, hair testing can be a great way to find out an employee's prior drug and alcohol use for the past 120 days or more. While a basic urine test can be used for a new job hire, it's a good idea to use a hair test after a serious accident. With a hair test, it may be possible to deny compensation based on an employee's behavior over the past four months. This can be an excellent way to reduce costs.

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