Workers Compensation Costs Should Be Viewed As Variable – Not Fixed
Do the Workers Compensation costs count as overhead? I have seen this situation many times when reviewing employers’ Workers Compensation situation. The cost of Workers Comp is a budget item that is in the overhead cost (cost of doing business) section of their budget. I would never infer that an employer, whether self-insured or not, should just change their company’s budget to make Workers Comp a controllable variable cost.
Including Workers Comp as a variable cost will usually result in three changes/improvements:
• Workers Comp costs will be examined more by Senior Management. If Workers Comp is viewed as a fixed cost, little attention will be paid to a possible silent budget killer. If a Risk Manager or CFO presents the costs as variable, Senior Management or the owners will be much more accepting of an in-depth analysis.
• Forecasting your future Workers Comp budget will be more accurate. If your company had 500 employees, and now has 350 due to the economy, why would you pay the same amount on the upfront policy with a 30% drop in employees and payroll? The same can be said for the budgeting of a self-insured. If Workers Comp costs are seen as overhead, then forecasting is usually not even attempted overall.
• Now that Workers Comp is a variable cost, the budget responsibilities can be broken down, for instance, each department, plant, location, etc. One of the quickest ways to lower a Mod is to delegate responsibility for their portion of the Mod down to the smallest groups possible. Lag time on reporting injuries is usually cut very quickly and substantially when lag time is looked at by management or the Risk Manager.
There are many other advantages to looking at Workers Comp as a variable cost.
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