This post is a brief summary of our white paper, “How to Reduce Your Experience Modifier: Staffing Edition.” If you would like to read the long-form version you can download it here.
Your experience modifier has a significant impact on the premium you pay for workers compensation insurance. Here we discuss the critical factors that go into calculating your experience modifier and reveal the key steps that you can take to reduce that modifier as much as possible.
The Experience Modifier Calculation
Before you can begin to reduce your experience modifier, it is helpful to have a valid understanding of what goes into the calculation process. The National Council on Compensation Insurance (NCCI) provides a great resource through its “ABCs of Experience Rating 2016” booklet that reveals in perfect detail how the experience modifier calculation is made. We highly recommend reading the full booklet, but here are the three critical factors for reducing your mod:
- The most impactful method to reduce your experience modifier is to reduce the number of employee injuries at your company.
- Medical only claims do not have as much impact on the experience modifier because the cost of these claims is reduced by 70% when making the mod calculation. Therefore, if you can return injured employees to a light-duty or regular-duty position in your company within the three to seven day waiting period you will reduce the impact to your mod by 70%
- There is a three year ‘lookback’ period that factors into the calculation of your experience modifier. It is important to understand that any changes made today will take time to be realized in your modifier. You need the fortitude to make the changes and stay the course until you have stacked multiple years of improved performance.
With a solid understanding of how these three critical components impact your experience modifier, you can now begin taking steps to reduce your modifier.
Step 1: Reduce the Number of Injuries
We highly recommend that your company implement an Incidence Rate Reduction (IRR) program as the first step towards reducing employee injuries in your workplace. Here is an outline of Work First’s temporary staffing IRR program that has proven to significantly reduce injuries:
The Core Components of an Incidence Rate Reduction Plan
A world class staffing industry IRR program consists of improvements in five key areas plus the implementation of a critical catalyst:
1) Employee selection
2) Matching of the employee to the job
3) Worksite evaluation
4) Safety Training
5) Accident Investigation
Catalyst: Staff compensation
Employee Selection Process
All applicants to your firm need to be screened not only for skills and experience, but their ability to perform all functions of the job safely. Staff must be trained specifically on the proper methods to screen for “safety” by adding behavioral based, safety related questions to your interview process.
Work First has evaluated many potential interview questions and believe we have determined the two very best questions to be:
- Think about what you believe to be the most important safety rules in your work and tell me about how you have gone about following them in the past.
- How have you handled a situation in which you saw a coworker working in an unsafe manner?
The best way to ensure a great match is to know both your temporary associate (see employee selection above) and to know the exact requirements of the job for which you are recruiting.
You must secure a complete and accurate job description of the job you are trying to fill.
All staff employees who interview and dispatch must know the proper questions to ask when taking a job order. Work First has developed a very simple, easy to implement system to assist in this area – please contact us if you are interested in learning more.
A key question that should be rhetorically asked by your staff prior to every dispatch of a temporary associate is, “Can this employee perform this job safely?” Just adding this single question to your matching procedure can make a material difference reducing your workplace injuries.
Most injuries we see occur in the first few days and weeks of the temporary associate being dispatched to the job. All too often this is due to the lack of appropriate safety training.
Staffing companies who achieve top customer service scores make it a practice to call the customer twice on the first day of a new assignment. The first call should be made shortly after the time the temporary associate was to begin to ensure an on-time arrival. During this call, in addition to the arrival check, staff should inquire as to when the site specific safety training is to occur. The second customer call should be made just prior to the end of the first workday to inquire as to the temporary associate’s performance. During this call, documentation that the required safety training actually occurred should be requested.
Staffing companies are challenged in that they cannot control the safety of the worksite, but they can control the decision as to whether or not you will service a location.
An in-person site evaluation must be conducted on every single location before a temporary associate is sent (telephonic evaluations are not acceptable). All staff employees who perform site evaluations must be equipped with the proper tools and training which is available from Work First, but beyond the scope of this post.
Conducting accident investigations on all workplace injuries that result in a filing of a notice with your insurance company provides three key benefits:
1) By developing an understanding of the cause of an accident, future accidents may be avoided.
2) Having staff take time away from their regular activities shows your company’s commitment to creating a safe work environment for all temporary associates. It helps to focus internal staff on making safe placements.
3) Gathering information immediately following the injury can be used to limit the scope of a claim or to defend the claim if its validity is doubted.
If there is one single message that you take away from this post on reducing your incidence rate, please make it this:
This entire process is not difficult – it just takes the discipline to consistently implement the right behaviors, and nothing is more effective at changing a behavior than tying it to compensation.
There are two primary methods to have injuries effect staff compensation:
1) Impose a charge to your branch financial statement, in the cost of sales section, for each workers’ compensation claim. Staff that earn a commission/bonus on either gross profit or net profit will see a reduction in profit due to the charge for the claim. This in turn will reduce the commission/bonus.
2) For those who like a carrot and stick approach a commission/bonus modifier is a great strategy. This strategy is often quite easy to implement as it modifies your existing commission/bonus either up or down depending on the incidence rate of an individual branch. With careful selection of the goal and the ranges for increased/reduced payouts this program can be made completely cost neutral to your organization.
Step 2: Establish an Effective Return to Work Program
While the number one way to lower your Ex-Mod is to reduce the frequency of injuries, unfortunately claims will happen. What you do after a claim occurs can have a big impact on your modifier.
Earlier we shared that medical-only claims get reduced by 70% when calculating your experience modifier. Therefore, having an effective early return to work program that gets an injured worker back on the job either in a regular-duty or modified-duty job during the waiting period (3-7 days depending on the state) can make a huge difference.
The key here is speed – you don’t have much time to get the injured worker back on the job. Your team cannot wait until an injury occurs to figure out a modified-duty job, you must be prepared in advance.
One of the least known but arguably most effective tools in reducing your Ex-Mod is the small deductible program. In addition to allowing you to participate in the cost of claims while enjoying a deductible premium credit, small deductible plans in 15 states (Alabama, Colorado, Florida, Georgia, Hawaii, Iowa, Kansas, Kentucky, Maine, Missouri, New Mexico, Oklahoma, Rhode Island, South Carolina and South Dakota) provide the huge benefit of having your claims reported “net” of the deductible.
So what does “net” mean? Assume the employer is in South Carolina, a net small-deductible state. The employer signs up for a small deductible and gets a small premium credit. When the claims activity for this employer is reported to the NCCI, it is reported “net” AFTER the deductible has been applied. If the employer had a $1,000 deductible, a $400 claim would show up at the NCCI as $0 and a $1,500 claim would show up as $500.
This one little secret can significantly reduce the frequency of claims reported to NCCI because a claim with net zero dollars paid does not count at all in your Ex-Mod calculation. By now you realize that the number one way to reduce your Ex-Mod is to reduce the frequency of claims, and a small deductible program in a net reporting state will do just that.
There you go, 3 steps to reducing your experience modifier. Nothing presented here is terribly difficult or complex. It simply requires discipline around a small number of best practices that will not only reduce your experience modifier, but will improve the service you provide to both your clients and your temporary employees.