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Your Guide to Workers’ Compensation via PEO

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A Professional Employer Organization (PEO) is a company that helps you streamline internal processes so you can better focus on your core operations. A PEO complements the HR department in shouldering numerous legal and administrative tasks, resulting in better credibility and efficiency.

An important task of your HR department is handling workers’ compensation insurance. This insurance protects you and your employees from the health risks associated with your business sector.

A PEO can help you understand the safety regulations, statutory tasks, and much more about workers’ compensation insurance. Their expertise and access to various policies will suit your needs and simplify claims processes.

Read on to understand how a PEO can help you save costs and choose the right policy.

Why Do You Need Workers’ Compensation Insurance

Signing up for workers’ compensation insurance is mandatory in every country, even if you have only one employee. However, there are more reasons you should avail this insurance from a business point of view:

Ensures workplace safety

Employees are your biggest asset and you are responsible for their safety in the workplace. If you operate in a high-risk sector, the compensation insurance will provide the best available benefits to the injured professional and shield you from significant expenses. Therefore, you can reduce your liabilities by paying a small premium.

Protects you from lawsuits

Before the introduction of compensation insurance, high-risk sectors were full of lawsuits against employers who either failed to protect their employees from injuries or denied paying for their treatment. The legal matters would often result in hefty payments.

Workers’ compensation insurance lays down numerous rules and terms meant to protect the interests of all parties involved. Hence, you can avoid unnecessary legal hassles and unexpected fines by signing up for workers’ compensation insurance via PEO.

Tackles the possibility of substance abuse

In 2021, drug addiction and alcoholism cost American businesses USD 81 billion in lost profits. It is crucial to ensure employee well-being and safeguard them from the dangers of addiction. An insurance policy covered by your company will help the injured professional get proper treatment and lead a healthy lifestyle. Hence, they will be able to contribute to growth initiatives as soon as they resume work.

Do PEOs Offer Workers’ Compensation Coverage?

Yes, a PEO provides workers’ compensation coverage and other claims administration.

You must sign up for workers’ compensation insurance if you have more than one employee. The insurance plan should cover the medical expenses, rehabilitation and a part of lost wages if an employee sustains an injury or sickness during work. The coverage should also include death benefits.

Read this blog to know more about International PEO.

Types of Workers’ Compensation policies PEOs offer

There are usually four types of workers’ compensation policies:

Master Policy

A standard compensation policy for employees, where the PEO is the primary insured and the coverage is given to all its direct employees and the leased staff of its clients.

Multiple Coordinated Policy (MCP)

A form of insurance policy issued for the leased workers of a PEO. The policy is issued as follows:

  • The PEO has a policy that covers its direct employees. In the absence of employees, the policy is given on an “if any” basis.
  • Every client company must have its standard policy that covers its leased employees in their name and Employer Identification Number (EIN)
  • Endorsements help in coordinating the coverage between the client company and the PEO

According to some state laws and NCCI rules, the insurer can choose to extend coverage to the client’s direct employees under the client’s company policy or issue a separate policy altogether.

Multiple PEO Policies

This is another policy type that covers the compensation and benefits of leased employees of a PEO. However, the policy is issued differently, as stated below:

  • Every client of the PEO should have a policy covering their leased employees. The policy must have the PEO as the primary named insured with reference to the client. For instance, the named insured is read as “XYZ Employee Leasing Company for leased employees of ABC client.”
  • The separate policy for the client company must have the client’s name and address

Client-secured coverage: An independent compensation policy obtained by the client for its leased and direct employees.

Experience Rating of Compensation Policies Issued via PEO

Experience rating is a method that considers the loss incurred by an insured party and compares it to the loss of another insured party in similar conditions. This methodology is useful in determining the premium rates that accurately reflect the risk surrounding the policyholder.

Insurance providers also use experience ratings to determine if a policyholder files more claims than other policyholders in the same group. For example, the insurer will compare a construction company to other companies of similar size and check if the former’s number of claims is higher than the average. In case they are higher, the insurance provider will increase the cost of premiums if there are a high number of claims, to safeguard the expected payout losses.

Modification of experience rating follows different procedures for the following types of policies:

Master Policy

When the client (an organization) leaves the PEO arrangement under a master policy, the latter’s insurance provider collects the payroll and pay out loss data during the PEO arrangement and reports it to the NCCI (National Council on Compensation Insurance).

The data must be submitted in the NC2745 Form – Workers Compensation Experience Rating for Former Clients of Labor Contractors, or any other form approved by the state. Before every renewal rating date, the insurer must resubmit the entire payroll and property valued losses for all years in the rating experience period.

After receiving the data, the NCCI decides the eligibility and modification of their experience rating.

Others (MCP, Multiple PEO Policies, Client-secured coverage)

No special reporting is necessary for modifying the experience rating under these insurances. Since the policies are unique for the PEO and client, the experience rating for each type is granted according to the NCCI’s Experience Rating Plan Manual.

Use A PEO To Control Workers’ Compensation Premiums

A PEO provides numerous cost-saving initiatives which help you allocate your budget towards worker’s compensation costs. The following methods will help you in legitimately controlling the cost of workers’ compensation insurance premiums with a PEO:

Implement Return to Work Program

When employees sustain an injury in the workplace, they are entitled to the workers’ compensation benefits as stated in the labor law. However, the sooner they join the work after recovery, lower the premium you have to pay.

Therefore, a reliable way to control your compensation premium is to assist your employees in faster recovery and motivate them to re-join in full, reduced, or altered capacity. Your PEO provider can help you draft a proper return to work program.

Develop Workplace Safety Program

Safety programs are crucial in high-risk sectors, such as construction. Asking employees to undergo safety programs will go a long way in reducing the chances of on-site injuries. Such initiatives promote awareness regarding the potential risks and their prevention measures.

In a risk-prone workplace, careful and knowledgeable employees will reduce the number of injuries and the cost of workers’ compensation premiums. Your PEO can help you in drafting an industry-standard safety program.

Optimize Worker Classification

The NCCI class codes are meant to segregate your workforce according to their risk of injury. The code helps insurance providers in determining the premium you have to pay. To understand the various codes and their meaning, you need the HR experts of a PEO. They will clearly explain the intricacies behind the class codes and help you classify your employees properly. As a result, you can understand the number of your employees exposed to risks and anticipate the premium to pay.

Prevent Fraud

There are instances of an employee faking an injury and filing an illegitimate compensation claim to gain benefits and get some time off work. As a matter of fact, workers’ compensation fraud was estimated at a valuation of 6-7 billion USD in 2020.

A trustworthy PEO will help you investigate all compensation claims and ensure zero cases of fraud and unnecessary costs.

Access PEOs Experience Modifier

If you are operating in a high-risk sector, you will probably have a higher experience modifier rate. As a result, you will pay high compensation premiums for your staff.

However, by partnering with a PEO, you can join their compensation plan with a low experience modifier rate. Hence, you can avoid choosing a policy on your own and paying a higher premium.

How To Report Various Policy Data

Insurers use the Employee Leasing Policy Type Code to report policy data for the various workers’ compensation policies. The code consists of a single digit and is reported in the Header Record, identifying with the type of PEO policy being reported.

The Employee Leasing Type Codes for various insurance kinds are as follows:

Code Policy Type
Policy Type Code 2 Where the PEO is insured and the coverage is given to its staff and the leased employees of its clients
Policy Type Code 3 Where the PEO is insured and the coverage is given to its non-leased employees
Policy Type Code 4 Where the client of a PEO is insured and coverage is provided to their leased employees
Policy Type Code 5 Where the PEO is insured and the coverage is provided to the leased employees of only one client
Policy Type Code 7 Where the primary insured is the client company and the coverage is provided to their leased and non-leased employees

How Multiplier Can Help You

A PEO-provided workers’ compensation insurance creates a safer working environment for the employees and eliminates the legal issues you might face. Furthermore, it makes your company a desirable place to work. The security of the workforce coupled with cost-effective premiums make insurance a must-have in every organization.

If you want to partner with a reliable PEO who can offer you top-to-bottom employee onboarding and managing solutions, consider Multiplier. Our digital platform helps you onboard candidates from 150+ countries in a compliant manner. During onboarding, you can register the employee for insurance plans that cover all their needs and have a reasonable premium. The platform lets you overview their claims and conveniently settle them.

Additionally, Multiplier helps you draft employment contracts within minutes, release payroll in local currency, allot benefits, manage leaves, and much more from a single window. Connect with us to know how we can add value to your organization.

Hiring and onboarding using Multiplier ensures you hire remote talent with locally compliant, fool-proof job contracts, offer emphatic benefits and disburse salaries accurately with absolutely nil errors in payrolls.

Hiring and onboarding using Multiplier ensures you hire remote talent with locally compliant, fool-proof job contracts, offer emphatic benefits and disburse salaries accurately with absolutely nil errors in payrolls.​

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