It is no secret that labor costs are a significant expense for most manufacturers. Two important labor-related costs are your workers’ compensation and unemployment insurance. Let’s take a look at steps you can take to help manage these costs.

Workers’ comp costs

Most states require employers to maintain workers’ comp insurance. Many manufacturing employees perform duties that make them susceptible to injury or illness, so this can be a significant expense. To help keep it under control, manufacturers should consider the following:

Check Employees’ Classification Codes
These codes are used by insurers to set premiums, so it is critical to properly classify your employees. For example, if clerical workers are mistakenly classified as shop floor workers, your premiums may be unnecessarily high.

Know Your Experience Modification Rate
Insurers also use this rate — which represents your company’s loss history relative to industry averages — to calculate your premiums. A higher rate means higher premiums, while a lower rate means lower premiums. Confirm that your insurer used accurate data and calculated this rate correctly.

Implement a Comprehensive Safety Program
When it comes to minimizing workers’ comp costs, nothing is more effective than a robust safety program for preventing accidents, injuries and illnesses. Your program should ensure that machinery and equipment is well maintained, appropriate safety equipment and protocols are used, and employees are properly trained.

Conduct Regular Safety Audits
Monitor your safety program’s performance with regular audits. Implement changes, if necessary, to eliminate potential hazards and reduce workplace incidents.

Make Safety Part of Your Culture
Integrate safety standards into your company’s culture. Set the right tone at the top and communicate the importance of safety to all employees. Encourage employees to promptly report accidents, injuries or illnesses. If they feel pressure to conceal incidents or “work through the pain,” untreated injuries or illnesses will worsen, and your workers’ comp costs will likely increase.

Implement a Return-to-Work Program
The longer injured workers are away from their jobs, the greater their claims for lost wages and the lower the chances they will return. A return-to-work program can help you retain employees and manage workers’ comp costs by getting injured or ill workers back to the workplace. Ease workers back into the workplace with light duties and rehabilitation, in some cases on a part-time basis. Often, workers’ comp insurance will make up the difference, if any, between workers’ normal wages and their wages during the rehab period.

Prevent Fraud
Review all claims for eligibility and accuracy. To avoid fraud, confirm that employees’ medical bills are legitimate and their medical reports are consistent with their reported injuries or illnesses.

Unemployment costs

Unemployment insurance is funded by federal and state payroll taxes and administered by the states. State unemployment tax rates vary from state to state, as do the state wage bases on which those taxes are imposed.

Typically, state tax rates for established businesses are also affected by their experience rating. This rating is based on the number of former employees collecting unemployment benefits and certain other factors. Strategies for lowering your experience rating and, therefore, your unemployment taxes include:

Hiring Conservatively
Unemployment benefits are generally available to employees who are terminated through no fault of their own (as opposed to those who quit or are fired for cause). Avoiding over-hiring can minimize terminations and unemployment claims.

Related Read: Labor Shortage: How Manufacturers Can Attract and Retain Qualified Workers

Using Independent Contractors or Temporary Workers
Contractors are not employees, so they are not eligible for unemployment benefits. Temporary or seasonal workers may or may not be eligible to file unemployment claims, depending on state law. Consider hiring temps through a professional employer organization (PEO). Generally, the PEO is the employer for tax purposes and is responsible for paying unemployment taxes.

Related Read: Classifying Workers as Employees or Independent Contractors: When Bringing Back Workers, Follow the Rules

Helping Employees Succeed
In many states, employees fired for poor performance (as opposed to gross misconduct) are eligible for unemployment benefits. To minimize terminations, screen prospective employees carefully to ensure they have the requisite job skills and provide them with the tools and training to succeed.

Opposing Illegitimate Claims
Contest claims if you can show that the employee quit, was fired for cause or is otherwise ineligible.

Offering Severance Pay and Outplacement Benefits
The former may delay the start of unemployment benefits, while the latter may reduce their duration.

Cost-control boosts profits

For manufacturing companies, controlling costs is critical to maintaining profitability. Your advisors can help you develop strategies for keeping costs to a minimum.

Sidebar:  What about remote workers?

If your company allows employees to work remotely, be sure you understand the impact on your workers’ compensation and unemployment insurance obligations. Remote workers, like other employees, are eligible for both benefits, generally pursuant to the laws of the states where they live and work.

Generally, employers are liable for injuries that are work related, no matter where the injury happens. Typically, the employee must prove the injury is work related. To minimize workers’ comp claims, it is a good idea to implement safety guidelines and policies for employees who work from home.

Remote workers can file unemployment claims in their state of residence or the state where they worked. Thus, if you have remote employees in different states, you will need to provide workers’ comp insurance that meets those states’ standards and pay unemployment taxes to those states.

For more information, contact Seamus Donoghue at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Manufacturing and Distribution Group.