How Workers' Compensation Works
What is an
Experience Factor?
It
is the number that indicates how your company’s claims experience (how many
accidents you have and how much they cost) compares to others in your industry.
It is used to modify the premium rate you pay into the State Fund to cover
workers’ compensation claims costs.
Premiums
are determined by your Experience Factor (EF)
New
businesses normally pay the “base” premium rate, which is set at 1.0. The base
rate reflects the risk
of
workplace injury or disease in specific industries as a whole, for each risk
classification. After a business
has
established it’s own accident experience record, the premium will be
“experience-rated.” This
means that your premium may be increased or decreased from the current base
rate based on your
company’s actual accident history. The higher your claims costs, the higher your
experience factor will
be,
and the more money you will pay in industrial insurance premiums You can manage
your experience
factor rating by having a good accident history through an effective accident
prevention program.
Each
year you receive a rate notice that includes the experience factor rating for
your business and how much you’ll pay for your business (“Your Rate). Your
premium rate (per hour), or “composite rate,” is determined by multiplying your
experience factor (EF) by the sum of the accident fund and medical aid base
rates, then adding in the supplemental pension assessment:
The
premium or composite rate is calculated as: Experience Factor x
(Accident Fund Rate + Medical
Fund Rate) + Supplemental Pension Assessment.
The
Accident Fund rate and Medical Fund rate are based on the risk classification;
the Supplemental Pension Assessment rate is the same for all risk
classifications.
Employees
may share in part of the premium costs, deducted by the Employer.
The
Premium Cost is calculated as: Hourly Premium or Composite Rate x Total Worker
Hours.
The
total industrial insurance premium cost for your business is the sum of all the
risk class premium costs.
Employees
are also rewarded by a lower experience factor rating.
Remember
from the previous section that employees share in part
of the premium costs, usually deducted by the employer from their paychecks.
The employees’ contribution to the premium costs is calculated as follows:
The
Bottom Line is this: Employers with claims costs lower than expected,
have premium rates reduced from base rates. The lower the experience factor,
the more you save.
Examples:
The
following example shows how three different companies in the same business can
have significantly different premiums, based on their experience factors:
- A new company (ABC Co.)
has no experience with on-the-job injuries. So it automatically gets an
experience factor of 1.0. That means a new company, or one with average
claims costs, pays the base rate for the industry.
- Another company (DEF
Co.) with a better-than-average accident record is rewarded with a lower
experience factor, say 0.5, for example. When this experience factor is
multiplied into the equation, it brings down the premium by about 50
percent, or only half of the basic rate. Thus, companies with good safety
records and sound claims management programs are rewarded with lower
industrial insurance premiums.
- A third company (XYZ
Co.) has had a history of incidents. Because of its high claims costs, it
has a high experience factor, perhaps as high as 2.0 or more. This
company’s injuries and illnesses and medical fund premiums will be two
times higher than those of a company at base rate.
Injuries
will affect your industrial insurance premiums for several years
Your
company’s current experience factor is calculated at the beginning of each year
on the basis of your claims track record during a rolling three-year window.
For example:
Claims
with a date-of-injury between 7/1/98 - 6/30/99 impacts an employer's rates for
the calendar years of 2001, 2001, and 2003.
Because
your industrial insurance premiums are based on your accident history, you can
work to control them. It makes the most sense to focus your efforts on
preventing future injuries and industrial insurance claims.
What
you do – or don’t do – about injury prevention will affect your company’s
premiums and profits
for
years to come.
Be more
competitive when bidding for projects by lowering your Experience Factor
When
it comes time to select from among a pool of bidders for a major project, the
business with the lowest experience factor has an edge in winning the contract.
Why? It presents the lowest risk.
- No one wants to hire an
“incident prone” company where work stoppage delays due to injuries are
more likely to occur, and
- with a lower experience
factor, your workers’ compensation premium will be less – this gives you
more flexibility on your bid.
Source: Washington State Department of Labor and Industries
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