Use these two strategies to minimize workers’ compensation costs and understand unique risks.
By Brett Findlay
The construction industry continually faces increasing challenges with insurance costs.
Workers’ compensation, one of a contractor’s largest single insurance-related costs, can be a critical component in bid competitiveness, project eligibility and general profitability. Driving down your workers’ compensation premium can help you maximize all of these.
I often speak with contractors who don’t believe they can control their workers’ compensation costs. Enter: the Construction Premium Adjustment Program Credit and payroll limitation.
The workers’ compensation Construction Premium Adjustment Program Credit (more commonly referred to as your PAP Credit) is designed to level the playing field for contractors that pay higher wages to their employees. The PAP Credit is available to all eligible contractors but is typically more effective for those in the prevailing wage sector. We regularly see credits applied between 5-15%.
To be eligible for the PAP Credit, your classification must be listed on the application itself. If you are unsure of whether or not your classification(s) are eligible, check with your agent. There are more than 80 eligible construction classifications total.
It is also necessary to have an experience modification factor (commonly referred to as an EMR) promulgated. In order to qualify for an EMR in New York State you must be in business, have carried workers’ compensation for an experience period of two years, and have an exposure (payroll) that produced an annual premium of at least $5,000.
Once you have satisfied these requirements, you must complete a 1-page application annually. You can fill out this application either physically or electronically. Typically the results are processed faster when you fill out the application online. Once the application is processed, you’ll see any potential credit applied to your policy at renewal. We recommend that you fill out the application prior to your renewal for the coming policy period, but if you have not filled it out for the current policy period, you may have it applied retroactively.
Payroll Limitation is another way for eligible construction classifications to limit their workers’ compensation costs. In New York State, eligible contractors are allowed to limit the payroll they report to their workers’ compensation carriers. In New York State, the maximum weekly payroll limitation cap for eligible classifications is $1,401.17. Therefore, if your individual employees earn wages above $1,401.17 on a weekly basis, you may limit what you report as payroll on your workers’ compensation policy to that amount. Also note that when employees earn overtime wages, it is only necessary to report their regular wages. Review your payroll information weekly to determine if payroll limitations apply to you.
The majority of construction-specific classifications in NY saw back-to-back rate decreases over the last two years, and it is my hope that these new tips can help you decrease your costs even further. If you have any questions on your workers’ compensation program and the potential eligibility of it, please do not hesitate to contact me.