Effectively managing workers’ compensation and unemployment insurance expenses is vital for manufacturers to ensure financial stability. Without strategies in place, these key labor 
costs can quickly erode profits.
Cut Workers’ Comp Costs by Focusing on Safety
Most states mandate that employers carry workers’ comp insurance, and for manufacturers, this can be a major expense due to the nature of the work. To control these costs, consider:
- Reviewing Employee Classification Codes: Insurers use classification codes to determine premiums, so it’s essential to categorize employees correctly. For instance, misclassifying clerical staff as shop floor workers can inflate your premiums unnecessarily.
- Verifying Your Experience Modification Rate (EMR): Your EMR, based on your company’s loss history compared to industry averages, impacts your premiums. A higher EMR means higher premiums. Ensure your insurer uses accurate data to calculate this rate correctly.
- Implementing a Strong Safety Program: The most effective way to reduce workers’ comp expenses is to prevent accidents. Maintain equipment, enforce safety protocols, and train employees properly to minimize workplace incidents.
- Conducting Regular Safety Audits: Regular audits help monitor the effectiveness of your safety measures. Adjust your practices as needed to address hazards and prevent accidents.
- Fostering a Safety-First Culture: Integrate safety into your company culture from the top down. Encourage prompt reporting of incidents to prevent untreated injuries from worsening, which could drive up costs.
- Set Up a Return-to-Work Program: By bringing injured employees back to work sooner, even with modified duties, you reduce lost wages claims and increase the chances of their return. Workers’ comp insurance can cover the wage difference during rehabilitation.
Lower Unemployment Insurance Costs by Managing Your Experience Rating
Unemployment insurance is funded by federal and state payroll taxes, and the rates vary by state. For established businesses, unemployment tax rates are influenced by the company’s experience rating, which reflects the number of former employees collecting unemployment. To lower your experience rating and reduce unemployment taxes, consider:
- Hiring Conservatively: Unemployment benefits are usually available to employees terminated through no fault of their own. Over-hiring increases the chances of layoffs and unemployment claims.
- Using Independent Contractors or Temporary Workers: Contractors aren’t eligible for unemployment benefits, and temporary workers’ eligibility depends on state laws. Hiring through a professional employer organization (PEO) may shift the tax responsibility to the PEO.
- Supporting Employee Success: Carefully screen candidates to ensure they have the skills needed for the job, and provide adequate training to help them succeed and minimize terminations.
- Contest Unjustified Claims: If an employee quits or is fired for cause, contest the claim. The definition of “for cause” varies by state, so consult local regulations.
- Providing Severance Pay and Outplacement Services: Severance may delay unemployment benefits, and outplacement services can shorten the duration of benefits by helping employees find new jobs.
Create a Plan to Control Costs
Labor expenses are significant for manufacturers, but proactive management of workers’ compensation and unemployment insurance costs can lead to greater profitability. Contact us for help developing strategies tailored to your manufacturing business.
