Workers’ compensation – payment and other benefits for injured workers – is one of the thornier issues facing manufacturers today. How does an employer maintain an insurance policy catered to employees’ needs while keeping an eye on its bottom line? The challenge stems from the fact that, as one insurer puts it, workers’ compensation is highly regulated, difficult to manage, varies by state, and can have a big impact on a company’s operations.
Several factors affect a manufacturer’s approach to workers’ compensation, including the firm’s size and location. For example, in 14 states, employers with five employees or fewer are not required to obtain workers’ compensation coverage. It is therefore particularly difficult for small shops, which make up a sizable portion of U.S. manufacturing, to budget for low-risk, high-cost injuries for workers.
For large multinational manufacturers, having more employees can increase the odds of a worker getting injured. It is crucial for such firms to have a clear understanding of the probability that a worker is injured on the job, and of the cost-structure scenarios for caring for the employee that could ensue.
Workplace injuries vary by sector. Eye injuries, which can be expensive, are more common in manufacturing than in other sectors, according to one study. Meanwhile, strains and sprains, and cuts and punctures made up half of manufacturing injuries, according to a survey by a leading insurer between 2010 and 2014. Having access to extensive industry data on injuries is a prerequisite for a good compensation policy.
There are other external issues beyond a manufacturer’s control that weigh heavily on a compensation policy. According to the Insurance Information Institute (III), “a major benefits issue still to be resolved in some states is the imbalance between levels of compensation for various degrees of impairment. Permanent partial disabilities tend to be overcompensated and permanent total disability undercompensated.”
Complicating matters is the chain of liability for a workplace accident. For example, an employee may sue a manufacturer of a machine for the gear’s role in injuring him or her, and the machine manufacturer may in turn sue the employer. In such cases, liability coverage can protect the employer from being held liable for the injury.
Workers’ compensation packages are set to evolve as the manufacturing workforce continues to modernize. For now, however, “workers’ compensation has not caught up to the modern era where a significant portion of the workforce is self-employed and that percentage is growing,” states a synopsis of a recent National Council on Compensation Insurance conference. “Most states exclude sole proprietors from having workers’ compensation coverage so we have a growing percentage of the workforce without coverage.”
One simple but often overlooked way for companies to manage risk related to compensation claims is timely communication. The quicker an insurer is notified of an injury, the quicker the worker can recover and less likely he or she is to seek an attorney, according to III.
“Electronic communication has enhanced procedures to speed up the ‘first notice of claim’ filing process to the workers’ compensation administrative office,” the institute noted.
Above all, a sound workers’ compensation policy starts with a thorough injury-prevention policy. Extensive research has documented how robust injury prevention programs can reduce workers’ compensation costs, which remain high. Benefit payments made under federal and state workers’ compensation programs were $62.3 billion in 2014, according to the Social Security Administration’s most recent data.