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As a wood flooring contractor, one of our large overhead expenses is workers comp insurance. We have to pay it—it's required by law—but over the years we've figured out different ways to make that expense as small as possible while still covering our workers and their safety.
One mistake we made was that we were with the same insurance company for decades. Our agent was a nice guy, and we never had any real problems. Then, we had one small injury, and he said he might have to drop us, so we shopped our insurance out, and we ended up saving thousands of dollars a year.
A lot of people don't shop their workers comp insurance every year. I hear people say, "My dad went with this guy." Insurance is a necessary part of doing business, and if you get comfortable with one person, you're going to find they're overcharging you; they're not being competitive. Now every year we sit down with two or three companies and say, "This is what we want, give us your best price." If you get two or three people bidding it, they're going to be competitive. Don't think just because you know the guy and you've played golf with him a couple times that you're getting the best price. People get comfortable with their agent. He may be a nice guy, but he's not looking to save you money. But when someone is bidding it, he's going to find reasons to lower your bottom-line price.
You should always be asking your insurance agent, "What can I do to decrease my monthly bill?" A printed safety manual and safety program will decrease your rates. You also have to find out what category the agent is putting you and all your employees under. Some get lazy and just throw you in a category, like "carpenter," and that increases your rates. You can ask your insurance agent for a list of the categories—there's one for almost anything you can think of. Then, make sure your employees' categories accurately reflect what they do. The managers, foremen, laborers—what category are they in? Is that laborer working with power tools and chopping wood flooring all the time, or is he mainly a finisher who has less likelihood of being injured? Supervisors and foremen shouldn't be put on your workers comp as laborers, because they have less risk.
In fact, managers who aren't doing physical labor out on job sites don't necessarily have to be on your workers comp insurance at all. Let's say you have 40 employees. The officers of the company can probably be excluded from your insurance. We save about $6,000 a year by excluding officers from workers comp. Before, I used to throw myself in under the "supervisor" category, but that's really unnecessary.
If you work in multiple states, you need to work with your insurance agent to make sure you have insurance in every state. Sometimes rates depend on the state and other times on where you do the majority of your business.
Another important thing to consider with workers comp is your subcontractors. A lot of people don't even worry about their subcontractors having adequate insurance, but when something happens on the job, the claim is going to come back to whoever has the contract, and that's you.
We mainly use our own employees, but we do use some subcontractors. We used to just put the subs on our workers comp and liability insurance and deduct their percentage of the premium from their pay, but when one of the subs got hurt, we learned the hard way that wasn't a good idea. The sub ended up being paid a claim for $80,000, and even though he was a subcontractor— and who knows if he really got hurt on our job or on a different one working for somebody else—his single claim ended up raising our workers comp rates for years afterwards.
Since then, we've worked with our insurance agents to find out what kind of workers comp and liability insurance our subcontractors need to carry to make sure we're covered. We have a booklet in the office including each subcontractor and a copy of their workers comp and liability insurance policies with the expiration dates highlighted. Every week before they get paid, we check the book to make sure their insurance is up to date, and if it isn't, we hold their check. You can also request to be an additional insurer on their policies, and that way, the subcontractor's insurance company has to notify you if their insurance is going to be cancelled. Also check that your subs have insurance covering all the necessary employees, not just a handful.
We also have a form that our subcontractors sign every single week. Among many other things, it states that the subcontractor has the necessary insurance. We get subcontractors coming into our office every day asking for work. We say, "Look, this is what you need," and we hand them the form—and they usually disappear.
When your subcontractors carry their own insurance, it helps establish them as valid independent contractors—not your employees—in the eyes of the IRS. Details like that—and workers comp in general—may seem like a headache, but they're vital to your being a legitimate, profitable businessperson.