Comprehensive Guide to Workers’ Comp Dividends
Navigating the complex world of workers’ compensation insurance can be daunting, but understanding the benefits your company may receive will help you make the most of your policy. Not all providers, plans, and policies are eligible for workers’ comp dividends, but those that do may help your business ensure its long-term success.
In this guide, we’ll discuss what workers’ comp dividends are, how the various types differ from one another, and how you can increase the chances of a payout at the end of your policy year.
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What are workers’ comp dividends?
Workers’ comp dividends are payments made to low-liability businesses from insurance providers. Here’s what you need to know:
How do they work?
Throughout the year, employers pay workers’ comp insurance premiums as required by their policy. At the end of the policy year, the carrier will review:
The number and cost of insurance claims.
The employer’s overall safety record.
The insurer’s financial performance.
If the total premium payment amount exceeds the cost of claims, the insurer may return a portion of that amount to the business.
How do employers benefit from workers’ comp dividends?
Workers’ comp dividends can significantly reduce the cost of workers’ compensation insurance, minimizing overhead costs and supporting positive cash flow over time. It’s also a great incentive for improving safety standards and encouraging employers to invest in training programs and ongoing compliance measures.
How do employees benefit from workers’ comp dividends?
An employee may not see direct financial benefits from workers’ comp dividends, but they can enjoy the indirect advantages of working for a company that values strong safety protocols. These employers may invest more in injury prevention and safe practices to support the health and well-being of employees.
Dividends also support stronger employer stability, as reduced insurance costs allow for greater job security and additional perks like paid family leave. Additionally, employers may be more proactive when addressing legitimate accidents or injuries that occur on the job if these instances are less frequent.
Related reading: What Is a Workers’ Comp Audit?
What types of workers’ comp dividends are there?
Let’s explore the types of workers’ comp dividends and how they differ from one another:
Flat workers’ comp dividend plans
Flat-rate dividend plans refund businesses a fixed percentage of the premium paid if they meet certain eligibility requirements, such as staying claim-free or maintaining a loss ratio below the specified limit. This is a great option for small businesses in low-risk industries and employers who want a simple, predictable dividend policy.
Variable workers’ comp dividend plans
Larger companies and those with strong, well-established safety programs may benefit from a variable or sliding-scale dividend plan. In these arrangements, carriers reward companies based on individual performance.
As a business’s loss ratio drops, the dividend percentage rises. While these policies may be more complex than flat-rate agreements, they may offer better incentives for some companies.
Combination workers’ comp dividend plans
Combination workers’ comp dividends offer the best of both worlds. Companies are guaranteed a flat rate if they meet the carrier’s requirements, but they have the opportunity to earn more by achieving lower loss ratio rates. These plans may be the best option for employers in high-risk fields, such as the construction industry.
Related: Time Theft: What It Is and How To Prevent It
What to consider when implementing workers’ comp dividends
Before implementing workers’ comp dividends in your business, consider the following components to help you choose the best structure for your needs:
Claims experience
Workers’ comp dividends are closely tied to how well a company manages workplace injuries. Frequent accidents and costly claims that require long-term medical assistance or disability payments can drastically reduce the likelihood of receiving repayment.
If you’re not sure where to begin, start by executing a regular risk assessment report to mitigate potential losses and address hazards before they become problems.
Loss ratios
Your business’s loss ratio is calculated by dividing the number of claims paid by the total premium paid. It’s a key component of your company’s eligibility for workers’ comp dividends, particularly for those with variable and combination plans. Tracking this figure quarterly can help your team stay on track to achieve the mandatory threshold, which is typically around 30% to 40%.
Eligibility requirements
Your insurance agent or advisor can help you verify your carrier’s dividend requirements. Some common conditions include:
Minimum premium payment.
No open claims or a low number of claims.
Participation in certain industries.
Good standing with the provider.
Policy must remain active for the full term of the agreement.
Retro plans and safety groups
Retrospective plans offer larger companies an adjustable premium based on actual losses incurred throughout the policy period. Entities with low claims can earn dividends, while those with high claims must pay additional fees. These plans can be risky, especially for companies with limited experience.
On the other hand, a small business may find support within state- or district-wide safety groups. These organizations are typically industry-specific and may offer access to advanced training services and loss control resources. By participating in a group fund or trust, your company shares the risks and benefits with other businesses based on the group’s overall performance.
Explore your employee benefits options with Clearpalm
Managing payroll is no easy feat, but Clearpalm can simplify the process and take the guesswork out of your day-to-day practices. Contact us today and learn how we can help you care for your team.
