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Workers Comp Supplements – Math Says No In Most Cases

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Workers Comp Supplements Can Skew System

The Workers Comp supplements paid by employers may not be a good idea.  One of the most popular subjects in WC is employer supplements. This subject seems to come up in risk management meetings and seminars very often.

Graphic Of Tax Papers Workers Comp Supplements With Calculator And Money
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Supplements involve the employer offsetting the reduction in pay an employee allegedly experiences when they are on WC benefits.

  • Waiting Period
  • Employee’s Loss of Earnings (???)

Employee is restored to Pre-Injury Wage

  • 6667 of Pre-Injury Wage (Tax Free)
  • Pre-Injury Wage = $600 week (Taxed)
  • Comp Rate = $400 week (Tax Free)
  • Employer Supplement = $200 week (Taxed)
  • Employer Supplement = $135 week (Tax Free)
  • Employee Receives = $535 week (Tax Free)
  • Employee Receives = $750 week (Taxed)
  • Motivation to Work? (Gone)

The first area concerning supplements is the Waiting Period. This is usually the first three to seven days that the employee is out of work. The Waiting Period is not paid until the employee has been out of work for a certain amount of days.

For example, the first seven calendar days may not be payable until an employee is out of work for more than 21 days. The main reason for a waiting period is to encourage the employee to rapidly return to work. If the employer pays the first week of benefits, this built in encouragement is eliminated.

Hand Presenting Workers Comp Supplements Insurance
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The basic function of WC benefits (as with most insurance) is to make the employee “whole again.” Most states require the WC insurer to pay 2/3 of the employees’ average weekly wage subject to a maximum. The benefits are paid tax-free.

In the above chart, the employee is receiving $600 per week as an average weekly wage. The WC weekly benefit rate is $400. The employer has decided to provide a supplement of $200 (taxed) per week to raise the employee’s wages back to their pre-injury wage. The after tax rate of the supplement is $135. When added to the WC weekly benefit rate, the employee is receiving $535 tax-free. Converting the employee’s pay back to a taxed rate, the employee is now receiving $750 per week taxed. The employee is now receiving a larger pay rate without having to work.

The employee has little or no motivation to return to work. The WC Supplement has eliminated the employee’s motivation to return to work. I recommend the avoidance of providing WC supplements for this very reason.

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One Response

  1. Use sick days for those initial days that aren’t covered. If you are going to pay any money to the employee, then pay it all. Don’t let the indemnity payments hit your experience modification.

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications

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