One of our clients—a large general contractor with 85 employees in three Texas offices—was approaching the renewal date for their workers’ compensation insurance policy. The firm had been in business for a number of years and had completed an impressive array of commercial, institutional and industrial projects.
Over the years, the contractor had successfully implemented a comprehensive safety program that resulted in a credit modifier* and very competitive workers’ compensation insurance rates. Unfortunately, they had experienced a significant loss the previous year and were told to expect a 50 percent increase in their experience modifier. Faced with the prospect of huge increase in their workers’ comp premiums, they turned to G&A for help and we delivered.
When we first met with company representatives, we listened carefully as they explained their predicament and all they had done to maintain a safe work environment. We gathered payroll data, experience worksheets, loss histories and other information. We completed our own risk assessment and then laid out a strategy that would save them about $150,000 a year in workers’ compensation insurance premiums. All they had to do was enter into a PEO arrangement** before the effective date of their new experience rating.
Texas state law requires a PEO to use the client’s experience modifier for the first two years of any PEO relationship. The modifier used is the one in place on the effective date of the contract. This is true even if the experience modifier is scheduled to increase at some later date. In this case, our client was able to lock in their credit modifier for two full years by executing a customer service agreement with us that predated the increase. We were able to use the lower modifier in pricing the workers’ compensation insurance coverage that we provided in the PEO arrangement. The cost of our policy allowed the client to maintain its current cost structure and its competitiveness in the marketplace. Additionally, they were able to offload much of the administrative work associated with payroll administration, employee benefits, human resources management and workplace safety at virtually no additional cost.
*An Experience Modifier or Experience Rating is a number assigned to a company by a group called NCCI Holdings Inc. (www.ncci.com). The number is used to price workers ‘compensation insurance. All companies start with a modifier of 1.00. That number then increases or decreases depending on the loss history of the company. If a company has a lot of on-the-job injuries or a few really bad ones, the number goes up and the company pays more for coverage. If they have few injuries or no serious injuries, the number goes down and so does the cost of their workers’ comp coverage. An experience modifier of less than 1.00 is referred to as a Credit Modifier. A figure that is greater than 1.00 is called a Debit Modifier. G&A has a Credit Modifier, which means we have had a good loss history over an extended period of time because the modifier reflects the last three full years of activity.
**A PEO arrangement is a mechanism that allows an employer to turn over the administrative and HR concerns for its employees to a company (co-employer) that acts as the employer of record. The employer writes the employer of record a single check per pay period, and this employer of record handles payroll, payroll taxes, employee benefits, workers’ comp, etc.