Reducing Workers Compensation Costs

An ergonomics program in the workplace is a win-win for everyone involved.  Employees work comfortably and injury-free and employers save money through increased productivity and lower injury rates.  One of the ways employers save money is through a reduction in their workers compensation premiums.  Many state workers compensation programs have an Experience Modification Factor (also known as Experience Modification Rating, EMR, X-Mod, and Experience Modifier) that is put in place to reward companies who have little to no injury claims and to encourage companies with claims to improve their working environment.  The X-Mod is a multiplier to a company’s premium based on their 3-year claim and loss history with workers compensation compared to other companies that perform the same type of work.

Here is an example:

ABC Company

ABC’s Classification Code:  8390 (this is a code that every company is given based on the type of work they perform)

Classification Code rate per $100:  8.75% (this is the rate assigned to the classification code based on the workplace risk associated with that code)

ABC Payroll:  $700,000

Current Workers Compensation premium = $61,250


If ABC Company has a high injury rate, they will have a high X-Mod Factor:

Workers Compensation premium:  $61,250

Experience Modification Factor: 1.2

Premium will increase = $73,500


If ABC Company has a low injury rate, they will have a low X-Mod Factor:

Workers Compensation premium:  $61,250

Experience Modification Factor: 0.8

Premium will decrease = $49,000


As you can see, ABC Company can choose to save more than $10,000 per year with an ergonomically-friendly workplace or pay more than $10,000 per year with a workplace that causes injuries.  Ergonomic intervention typically costs much less on a one-time basis than it does to pay increased premiums each year.  Keeping the workplace safe and risk-free is definitely the way to go to keep costs down.


Saving Money with Ergonomics

Did you know that in 2008:

Sprains or strains accounted for 39% of total injury or illness cases requiring days away from work.

Repetitive motion continued to be the event with the highest median days away from work with 18 days.

Workers who suffered from carpal tunnel syndrome required a median of 28 days to recuperate.

(Source:  Bureau of Labor Statistics, 2008)

And that:

Each work-related injury that results in lost time costs businesses an average of $28,000 per year

(Source:  OSHA)

And also:

Every $1 of direct costs for injuries generated between $3 and $5 of indirect costs

(Source:  Liberty Mutual Workplace Safety Index, 2003)

Sadly, work-related injuries continue to cause employees a lot of pain and employers a lot of money.  It’s important to make sure that employees are working in environments that are comfortable and well-fitting so that work-related injuries do not occur.  Once an injury becomes so severe an employee has to take time off work, both the employee and employer suffer.  Employees experience a loss of income, as well as pain and discomfort; and employers incur many costs.  These costs are not just direct costs like medical bills, but indirect costs like:

Overtime – for existing employees to cover the injured employee’s job;

Retraining – for new and existing employees to learn the injured employee’s job;

Extra administration time – paperwork for injury and new hires/temps;

Loss in productivity – new and existing workers trying to take care of a job they are not used to requires extra training and adjustment time;

Increased OSHA involvement – once a claim has been submitted to OSHA, the company will likely see more OSHA involvement at their company than before;

Lowered company reputation – a company that has employees off on injury frequently is not seen as a good place to work and signifies indifference on the side of the employer;

Decreased employee morale – employees facing the possibility of injury lose confidence;

High turnover – employees may not stay around if injury rates are high;

Insurance premium increases – workers compensation costs will go up.

But there is hope.  With proper ergonomics training and set up, scientific evidence has shown a reduction in work-related injuries (Source:  MUSCULOSKELETAL DISORDERS AND THE WORKPLACE, Low Back and Upper Extremities, National Research Council [National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine], 2001).  And my next post will explain the Experience Modification Factor (X Mod) used by many Workers Compensation Boards as an incentive to reduce injuries.