What is Florida Workmans’ Compensation?
Workmans’ compensation is “on the job” insurance. It provides benefits to employees for work related injuries and illnesses. In its simplest form the workers comp system acts as the most effective process available to get an injured worker back to the work place as soon as possible. Because workmans’ compensation insurance in Florida is mandated by law, business owners often think that it is just one more overhead expense that provides little benefit. But gook workers’ compensation insurance is actually an affordable benefit that protects both you and your employees.
Who Needs Florida Workers’ Compensation?
If you are in an industry, other than construction, and have 4 or more employees, full or part time you are required to carry workers comp coverage (an exempted corporate officer does not count as an employee).
If you are in the construction industry, and have 1 or more employees (including yourself), you are required to carry Florida workmans’ comp coverage (an exempted corporate officer or member of LLC does not count as an employee).
If you are a state or local government you are required to carry workers comp coverage.
If you are a farmer, and have more than 5 regular employees and/or 12 or more other workers for seasonal agricultural labor lasting 30 days or more, you are required to carry Florida workmans’ compensation coverage.
Coverage and Rates
Statutorily, work comp coverage in Florida is the same from insurance carrier to carrier. Each year, every carrier that writes Florida workmans’ compensation coverage is required to submit the claims and payroll data for each policy to the National Council on Compensation Insurance (NCCI). The NCCI takes this data and actuarially computes the amount of rate each class code needs to collect in order to cover the costs of the claims that class code is expected to have in the upcoming year. In Florida, rates are filed annually in the fall by the NCCI to the Florida Department of Insurance and the DOI makes any changes it sees fit before filing the final rates effective January 1st of the next year.
Exemptions from Florida Workmans’ Compensation Insurance
Any individual serving as an officer of a corporation (the corporation must be registered with the Florida Department of State Division of Corporations), who elects to be exempt my not recover Florida workmans’ compensation benefits. You must meet eligibility requirements and provide documentation supporting your application. Construction industry corporate officer including a member of a limited liability company (LLC) applying for an exemption must own at least 10 percent of the stock of the corporation as shown by a stock certificate. A construction company is only allowed to have a maximum of 3 exempt officers at any one time with the state of Florida. In the case of a LLC a notarized statement attesting to the minimum 10 percent ownership is acceptable.
Members of a non-construction LLC are not eligible to file an exemption with the State of Florida. Additionally, a construction sole proprietor is automatically included under Florida workmans’ compensation.
Payroll and Class Codes Determine Your Premium Starting Point
As a business owner, the rates that you will pay depends on the type of business you are in, your workers compensation track record and how much you pay your employees. A number of factors go into determining the annual premium your insurance carrier will charge. These include your industry classification, your company’s past history of work related injuries (known as your experience modification, MOD), your payroll, any special underwriting adjustments and any special group or dividend programs you may be eligible for.
How is Your Premium Calculated?
Premium for each classification code is determined by multiplying a rate times a premium basis. Gross payroll by class code is the most common premium basis. This includes payroll and all other remuneration paid or payable during the policy period for the services of employees and all others engaged in work on behalf of the employer for which the carrier is covering or could be liable. The rate charged is based on every $100 dollars of payroll.
Class Code Rate x Payroll/$100 = Manual Premium
*these rates are for demonstrational purpose only and may not be reflective of current carrier findings.
|Class Code||Description||Rate*||Payroll||Starting Premium|
This is called the “manual premium” or your “starting premium” because there are many other factors that can increase or decrease this amount. If your business qualifies (based on minimum premiums paid in the past), your account could be subject to an experience rating (MOD or EMR), which calculates a credit (or debit) factor based on your claim history compared to others in your industry. Businesses may have additional pricing factors applied by participating in sponsored trade programs and safety groups. With Florida workmans’ compensation, it is also possible to save money by participating in state premium credit programs, such as Safety and Drug and Alcohol Free Workplace Credits.
Money Saving Credits
Florida workmans’ compensation policies are eligible for two premium lowering credits by having a workplace safety program and being a certified drug free workplace.
Workplace Safety Credit (2% premium savings)
To qualify for this credit, a business must have a written state certified workplace safety program, have a “Safety Coordinator” , and form a four person safety committee that agrees to meet at least quarterly to talk about safety in the workplace. The committee must be comprised of two supervisory level employees and two non-supervisory level employees. At a minimum, the program must include a written safety policy and safety rules, and make provision for safety inspections, preventative maintenance, safety training, first-aid, accident investigation, and necessary recordkeeping. Documentation of safety meetings is required as well as a list of attendees. There is a Florida workmans’ compensation application that carriers require be signed by a corporate officer, signed by a notary public, and turned in annually to recertify the 2% credit. If the recertified application is not submitted, the 2% credit may be removed from the policy.
Certified Drug Free Workplace Credit (5% premium savings)
To qualify for this credit, a business must have a written state certified drug free workplace program that complies with the Florida workmans’ compensation statute 440.102 . In addition to the written program, the following testing methods are required:
- Job applicant drug testing.--An employer must require job applicants to submit to a drug test and may use a refusal to submit to a drug test or a positive confirmed drug test as a basis for refusing to hire a job applicant.
- Reasonable-suspicion drug testing.--An employer must require an employee to submit to reasonable-suspicion drug testing.
- Routine fitness-for-duty drug testing.--An employer must require an employee to submit to a drug test if the test is conducted as part of a routinely scheduled employee fitness-for-duty medical examination that is part of the employer's established policy or that is scheduled routinely for all members of an employment classification or group.
- Post-Accident drug testing -- Injured workers must submit to a drug screen at the earliest possible opportunity after they are hurt on the job. The workers’ comp carrier has the right to deny paying medical and indemnity benefits to a claimant that tests positive for illegal drugs or excessive alcohol in their system.
- Follow up drug testing.--If the employee in the course of employment enters an employee assistance program for drug-related problems, or a drug rehabilitation program, the employer must require the employee to submit to a drug test as a follow up to such program, unless the employee voluntarily entered the program. In those cases, the employer has the option to not require follow up testing. If follow up testing is required, it must be conducted at least once a year for a 2-year period after completion of the program. Advance notice of a follow up testing date must not be given to the employee to be tested.
Note that random drug testing is an option for employers to implement as part of their Florida workmans’ compensation drug free workplace program but random testing is not required to receive the 5% premium savings credit on.
NCCI Experience MOD Factor
The National Council on Compensation Insurance (NCCI) develops your experience MOD annually and insurance carriers use it as a tool to compare your claims experience to that of your industry. To qualify for a MOD rating, an insured must have had coverage of a minimum premium of $10,000 for one policy period or $5,000 for two consecutive policy periods.
The NCCI produces a MOD Worksheet that outlines the calculation and the data that was used to develop your MOD factor. Typically, the MOD worksheet contains three years of claims and payroll data. The most recent policy year is not included in the three years. For example, for a 1/1/2012 MOD, the worksheet would contain the 2010, 2009, and 2008 policy year’s data (not 2011). For a detailed description of the terms and calculation of your MOD Factor, click here.
A company with an average amount of Florida workmans’ compensation claims compared to the rest of their industry will have a 1.00 MOD. If the company has an above average amount of claims they will have a debit MOD (ex. 1.20) and will be charged an extra 20% when their premium is calculated. Conversely, if a company has a lower than average amount of workers’ comp claims, they can have a credit MOD (ex. 0.80) and will receive a 20% discount on their premium when it’s calculated. This large swing in cost due to the MOD factor is one of the main reasons employers need to make sure their MOD worksheet is checked for errors on at least an annual basis.
The evaluation date of your claims and payroll information that is used for your MOD factor calculation occurs six months prior to your next policy renewal date. For example, if your policy renewal date is 2/1/2012, the evaluation date for that MOD is 8/1/2011. On occasion, a claim that is open at the evaluation date will close before the policy renewal date and the value it closes for is less than what is was originally valued at on the evaluation date. This is known as Aggravated Inequity. Depending on the amount of change this claim closing has on the MOD factor, there may be an opportunity for the carrier to resubmit the claims data to the NCCI and have the MOD factor recalculated and lowered.
In 2011, the NCCI stopped mailing copies of the Experience MOD Factor worksheet to each policy holder. They now mail out a letter approximately three - four months prior to your policy renewal date with instructions on how to print your own copy from their web site www.ncci.com/worksheets. If you have not received the letter and would like to obtain a copy, call the NCCI at 1-800-622-4123 and select option #4 from the menu.
How Claims Affect Your Premiums
The amount of claims dollars your workers’ comp policy incurs directly impacts your annual Florida workmans’ compensation premium in two ways.
Your NCCI experience MOD factor is calculated based on the amount of claims dollars your company incurs compared to the amount of expected claims dollars for your industry. When the amount of claims dollars incurred is higher than what is expected, your MOD will be above a 1.00 and you will pay more than you should for your coverage.
Virtually all dividend programs carriers offer base the amount of dividend you can earn based on the loss ratio over the course of your policy year. Your loss ratio is calculated by taking the total incurred claims dollars and divide them by your annual audited premium. The more claims dollars incurred, the lower the possible dividend you can earn.
There are 7 claim strategies to keeping claim costs down which in turn keeps the amount you pay in workers’ comp premium down.
Establish a personal relationship with your medical providers
Have a written back to work program with modified/light duty job descriptions for every position within your company
Utilize a post-offer of employment medical questionnaire to ensure your new employee can do the job that you have been hired to do
Have your injured employee bring their paperwork to you after every doctor visit
Use a walk-in or urgent care clinic versus an emergency room whenever possible
Use an agent who reviews your workers’ comp claims frequently
Use an agency who understands how important closing a claim can be for MOD and dividend purposes
If you see an accident on the job or someone reports one:
Contact your Florida workmans’ compensation insurance company right away.
Fill out an Accident Investigation Report for all incidents regardless of whether professional medical treatment was sought.
Stay in contact with your employee and the adjuster until the injured worker is back on the job.
If the employee is released to work with restrictions:
Get the doctor’s list of restrictions from the injured worker or directly from the doctor’s office, and meet with the injured worker to see if work is available that he/she can do.
If restricted work is available, discuss with the injured worker starting time and date, what you can pay him/her based on new job duties, and report the restricted work to the adjuster.
Inform the adjuster when the injured worker is scheduled to return to restricted work. If the injured worker will not be earning what he/she earned before, send the adjuster wage information on a weekly or bi-weekly basis to determine if temporary partial benefits are due. Also, report to the adjuster if the injured worker is unable to, due to restrictions, continue working, or if you can’t give him/her restricted work any longer, or if the doctor releases him/her to regular work.
Report all workplace deaths to the Florida Division of Workers’ Compensation within 24 hours of discovery. Call 1-800-219-8953 or 850-922-8953. OSHA also is required to be contacted in the event of a workplace death at 800-321-OSHA.
Report all job-related injuries to your workers’ comp insurance company within 7 days of discovery.
Provide a copy of the injury report to the injured worker (First Report of Injury from).
Report required wage information to the insurance company within 14 days of learning of an injury that will require the employee to miss work for more than 7 days or that results in a permanent impairment.
Penalties For Late Filing Of A Claim That Was Due To The Employers Failure To Timely Notify The Insurer
In Florida workmans’ compensation, if the First Report of Injury is filed late with the Division due to the late reporting of the accident by the employer to the insurance company, the employer may be penalized for the late filing, according to the following schedule:
$100 for 1 through 7 days of untimely filing.
$200 for 8 through 14 days of untimely filing.
$300 for 15 through 21 days of untimely filing.
$400 for 22 through 28 days of untimely filing.
$500 for over 28 days of untimely filing.
In addition to the above administrative penalty paid to the Division, the employer may be liable for penalties and interest on the late payment of compensation, due to the late filing.
Workers’ Compensation Audits
An audit is done at the expiration of your policy period to verify actual payroll information versus your estimated payroll for the year. The audit results will determine if you owe additional premium or are due a refund for overpayment on your Florida workmans’ compensation policy.
- When is an audit scheduled?
You will be contacted in advance usually by letter to schedule your audit appointment. An audit is usually scheduled within 30-45 days of the expiration date of your policy year. When making your appointment, make certain to obtain the Auditor’s name and phone number. If you need to reschedule your audit appointment, you should call the auditor as soon as possible.
- What information has to be provided to an Auditor?
You are required to provide year to date payroll records; quarterly payroll tax reports, cash disbursement journal or business checkbook; general ledger; and Certificates of Insurance, if any, for subcontractors; and detailed job descriptions for your Employees.
Why has my carrier asked me to mail my audit paperwork to them?
Pursuant to the Florida State Special Audit rules, effective March 10th, 2010, the state of Florida revised their audit guidelines to allow a mail in audit for non-construction accounts with an annual premium less than $10,000 and for construction accounts with an annual premium of $5,000 or less. To learn more about the forms required for this type of audit, click here.
Workers’ Compensation Dividends
Some Florida workmans’ compensation carriers will offer their policy holders the opportunity to earn back a portion of the premium they pay in back in the form of a dividend. Also known as “Safety Rewards” or “Profit Sharing” plans, these programs can have a significant lowering effect on your annual work comp premium cost. Most dividends are paid out based on the loss ratio the policy has over the twelve month policy year. The loss ratio is calculated by:
|Loss Ratio =||Total claims dollars incurred (includes paid and reserves)|
|Annual Audited Premium|
There are several important factors to weigh when comparing dividend plans.
By law, carriers cannot guarantee dividends and they must be declared annually by the carrier’s board of directors. Ask what the carrier’s history of paying dividends is and if they have ever not declared or paid one.
The type of dividend being offered:
Traditional dividends: are normally based on a sliding scale percentage table. The lower your loss ratio, the larger the potential dividend you can earn
Up Front Dividends: new to the market, these dividends tend to be less aggressive than traditional dividends but can be structured to pay out a certain percentage amount regardless of your loss ratio
The timetable for the dividend calculation and the dividend payout. This parameter can vary greatly from carrier to carrier. Some Florida workmans’ compensation carriers have a one-time calculation that is done 4 – 6 months after the policy expires and then 100% of any earned and declared dividend is paid out. This type of payout can be attractive if you don’t have any open claims when the dividend loss ratio calculation is done. However, the short calculation time can work against you if your open claims have reserves that drive your loss ratio up. Other carriers perform two dividend calculations (one 6 months after the policy expires and the second one 18 months after). On these type of plans, the carrier will normally pay 50% of any earned and declared dividend at the 6 month mark and the other 50% at the 18 month mark. It takes longer to receive your dividends but this type of dividend plan can work in your favor if you have open claims at the 6 month calculation.
Loss Sensitive Plans
Another premium saving Florida workmans’ compensation program comes from a loss sensitive plan. There are primarily two types of these, an incurred loss retrospective plan and a paid loss retrospective plan.
Incurred Loss Retro Plan: this type of plan functions similarly to a traditional dividend plan with a few exceptions. Like a traditional plan, there are specific times after the policy expires at which the amount of premium that is paid back to the insured is determined. Most incurred loss retro plans have their retro calculations at 6 months, 18 months, and 30 months after the policy expires. The two main differences between this plan and a traditional dividend plan are:
Whereas with a traditional dividend plan, the carrier cannot guarantee the payment of the dividend, on an incurred loss retro plan, any return of premium earned is contractually guaranteed by the carrier.
With a traditional dividend plan, the maximum amount of premium you will pay is the discounted premium (defined as the premium amount after the application of the experience MOD and the state of Florida mandated stock discount). On an incurred loss retro plan, the maximum amount of premium you can pay is usually the standard premium (defined as the premium amount after the application of the experience MOD but before the state of Florida mandated stock discount) times a multiplier of 1.05 or 1.10. What this means is that depending on the amount of claims dollars you incur during the policy year, you could end up paying 5 % to 10% more than the standard premium.
Paid Loss Retro Plan: this Florida workmans’ compensation plan allows qualifying companies the ability to pay in a percentage of the standard premium over the course of the policy year and be billed for claims as the carrier pays them out. For example, if a company has a standard premium of $100,000, their paid loss retro plan may allow them to pay in 60% (or $60,000) over the course of the 12 month policy year. If the company does not have any claims, they will only have had to pay in the $60,000 and would have benefitted from having saved $40,000 in premium up front. If the company does have claims and claims dollars are paid out by the carrier, the carrier will turn around and bill the insured for the claim. The carrier will also add on a claims handling fee (known as a loss conversion factor) that is usually a percentage added onto the claim dollars paid out. The carrier will also add on a state mandated tax multiplier to the cost of the converted claim. Like an incurred loss retro plan, there is a chance that they insured could pay 5% to 10% more than the standard premium if they have a poor claims year. One other note, since the insured is paying in a percentage of the standard premium over the course of the policy year, most carriers require that the insured furnish sometime of financial security to cover the difference between the minimum premium and maximum premium. The financial security is usually provided in the form of a letter of credit, bond, or certificate of deposit.
Pay As You Go Plans
Certain Florida workmans’ compensation carriers offer the ability for their policy holders to pay their premium on a monthly or per-pay-period basis (when partnered with an approved payroll company). These cash flow friendly plans also feature a low down payment of $200 to start the policy.
Employee Leasing (PEO) Work Comp Coverage
Employee leasing is the practice of outsourcing the payroll and other human resources administration tasks by one company (client) to another company (employee leasing company) which provides those services. The employee leasing company and the client share what is known as a co-employment relationship with the employee. In recent years, the term employee leasing has often been replaced with professional employer organization, or PEO.
Employee leasing companies switch their clients' payroll to their own system and become the legal employer of record for their client company. The client business is left with fewer administrative tasks, thus allowing it to focus on its core competencies. The leasing company is responsible for taxes and employment law and policy. In exchange for these services, a PEO will charge the client company an administrative fee, which is typically a percentage of the gross payroll. Depending on your company’s situation, it may make sense to explore the option of using a PEO for your Florida workmans’ compensation coverage.
First Report of Injury Form
Click here for a First Report of Injury Form