Understanding workers' compensation key for small businesses

As the economy slowly continues to turn, small business owners in Montana, and across the country, remain concerned about controlling costs and minimizing risks.

Now more than ever, small business decision-makers must continuously evaluate cost structures and work to enhance operational efficiencies amid a series of ongoing challenges, including limited access to credit and loans, increasing costs, changes in health care legislation and economic uncertainty.

These are issues small businesses have very little control over. Even during these challenging times there are steps small business owners can take to control costs, which can help drive growth in the long-term.

Some commonly overlooked costs impacting the nation’s small businesses are those associated with workers’ compensation insurance, which is often misunderstood and frequently thought of in the same terms as other insurance products.

Even with all of the recent discussion of workers’ compensation reform and its impact on rates in Montana, many people still do not fully understand workers’ compensation.

Because workers’ compensation insurance is required by law in Montana, it could be perceived as another business tax, yet most small businesses don’t understand how taking a strategic approach to risk management can actually lower their costs, much like an informed-approach to tax planning.

Discounted workers’ compensation insurance through programs like the National Federation of Independent Business (NFIB) provides its Montana members with a way to reduce the cost of workers’ compensation insurance. Since most small businesses don’t have dedicated risk managers, a little bit more context and understanding can potentially help them further lower costs and realize efficiency gains.

With workers’ compensation, there are areas where significant cost savings can be realized, for example by improving workplace safety or identifying and preventing fraud.

The Occupational Safety & Health Administration (OSHA) estimates that direct workers’ compensation costs alone run nearly $1 billion per week, which includes workers’ compensation payments, medical expenses and costs for legal services. When indirect workers’ compensation costs, such as lost productivity, training replacement employees and equipment repairs are considered, the costs are multiplied exponentially.

Whether direct or indirect, businesses ultimately bear the brunt of these costs in the form of increased insurance rates, rising premiums and productivity losses. Not just a financial burden on big businesses, this issue significantly impacts America’s small businesses, considering the U.S. Small Business Administration estimates there are 29.6 million small businesses, which employ more than half of the country’s private sector workforce.

For this reason, it is critical that business owners understand that a strategic approach to workers’ compensation is just as important to cost savings as smart tax planning.  Small businesses should maintain a long-term workers’ compensation perspective focused on value, not just lowest cost. They should be sure they have access to resources and value-added services that both protect their businesses today, and also position them to potentially lower their workers’ compensation rates in the future.

Taking a closer look at workers’ compensation can actually help small businesses not only better manage their risk, but also effectively manage costs, which is just smart business no matter what the economic climate.

By taking proactive, common sense measures toward workplace safety, small business owners may greatly reduce their risk of workplace injury-related costs.

Workers’ compensation insurance covers employers for their statutory and legal obligations for employee expenses that are a direct result of on-the-job injuries or illness.

While plans differ within and among states, workers’ compensation benefits can include weekly payments in place of wages and reimbursement for payment of medical and rehabilitation expenses. Depending on the jurisdiction, business owners can obtain their workers’ compensation protection from private insurance companies, state insurance funds, self-insurance or self-insured groups.

There are basic, day-to-day operational measures that small business owners can take to mitigate the risk of workplace injury and related costs. Establishing policies, procedures and rules surrounding workplace safety provides employees with the necessary tools to do their jobs safely. Enforcing safety rules through the use of workplace audits, safety meetings and annual training are proven ways to reduce the risk of claims that can ultimately cost a business thousands of dollars.

Small businesses have unique needs, which is why they should take advantage of resources tailored to meet those needs. The NFIB is the nation’s leading small business association, representing small businesses in Washington, D.C. and all 50 state capitals. Founded in 1943 as a nonprofit, nonpartisan organization, NFIB gives small and independent business owners a voice in shaping the public policy issues that affect their businesses.

NFIB’s powerful network of grassroots activists send views directly to state and federal lawmakers through its unique member-only ballot, thus playing a critical role in supporting America’s free enterprise system. NFIB’s mission is to promote and protect the right of its members to own, operate and grow their businesses.

Regardless of the rate of economic recovery, small businesses should focus their energy on the variables they can control. Taking a smart, informed approach to workers’ compensation insurance not only protects valued employees and minimizes risk for the long-term, but it also protects small businesses from taking on new costs during a time of economic uncertainty when they are most vulnerable.

Hale Johnston is senior vice president, regional manager of the Western Region for Employers for Holdings, Inc.