| Experience Modification Factor | | | | and each case is evaluated on its own merits. That |
| An employer’s Experience Modification Factor | | | | said there are similar basic principles to reference in |
| (“mod”) is an important number in a premium | | | | most jurisdictions in making the determination. |
| calculation and tells a story in and of itself. This is | | | | |
| truly a modification factor because an | | | | The vast majority of employees in a typical |
| employer’s rate or premium is modified or | | | | employee/employer relationship are covered. For |
| adjusted up or down based upon the factor. | | | | example, checkers at a grocery store, factory |
| | | | | workers, fast food workers and hospital nurses are |
| NCCI, the National Council on Compensation Insurance | | | | generally all covered. Very small employers with |
| (a rating bureau) calculates mods annually for non-self | | | | perhaps 3-5 or fewer employees are not always |
| insured employers, usually based on a three-year | | | | required by law to carry workers’ compensation |
| history of loss experience. Some states have rating | | | | insurance. Owners and corporate officers often are |
| bureaus independent of NCCI. Typically the most | | | | allowed to opt out of coverage. |
| recent complete year is not included but the three | | | | |
| policy years prior to that count. For example, for | | | | Independent contractors and subcontractors seem |
| policies expiring on January 1, 2010, the three years | | | | to create the most questions. Employers should |
| included would be January 1, 2006–January 1, | | | | require proof of workers’ compensation |
| 2009. Older years experience drop off as time | | | | insurance when hiring independent contractors. If the |
| progresses every year. So, a company is essentially | | | | contractor proves ultimately to be uninsured, chances |
| only penalized for three years for an exceptionally | | | | are the employer hiring the contractor will become |
| bad year from a loss standpoint. | | | | responsible for the injuries of the contactor’s |
| | | | | employees then referred to as statutory |
| The calculation of a mod is based on a standardized | | | | employees. The same goes for hiring an individual |
| formula applying payroll, payroll classifications (class | | | | who presents as a sole independent contractor as |
| codes associated with the type of job or risk), claim | | | | often happens for example in the long-haul trucking |
| frequency (number of claims) and claim severity | | | | industry. |
| (cost of claims). Claim frequency is weighted slightly | | | | |
| higher than severity and medical-only claims are | | | | Consider these circumstances when evaluating an |
| discounted so they don’t carry nearly the weight | | | | employee/employer relationship: |
| of a claim involving an indemnity payment (usually | | | | |
| lost-time or settlement). | | | | 1. Who has direction and control of the work being |
| | | | | done? |
| An average is also calculated for all employers in the | | | | 2. Who has the right to hire or fire workers? |
| same state in the same business based upon | | | | 3. Who is paying workers and from whose account? |
| information submitted by insurance companies to the | | | | 4. Who owns the equipment used in performing the |
| rating bureau. A premium credit discounting the | | | | job? |
| manual premium is given to reward employers with | | | | 5. Are taxes withheld upon payment? |
| better than average performance in terms of loss | | | | 6. Is the work being done normally performed by |
| experience and premium debits are applied to the | | | | this employer? |
| annual premium for employers with worse than | | | | |
| average performance or experience resulting in, of | | | | Volunteers can at times be considered employees |
| course, a higher premium. | | | | and allowed benefits when there is some |
| | | | | consideration provided to the volunteer for services, |
| For example, a company with an experience mod of | | | | including meals, transportation or room and |
| 1.10 is performing at a level 10% worse than the | | | | board. Loaned or borrowed employees also may |
| average of other similar companies in the same | | | | create a special set of circumstances in considering |
| state. A company with a mod of .90 is performing | | | | the employer/employee relationship. |
| at a level 10% better than the average of peer | | | | |
| companies. (workersxzcompxzkit) | | | | Usually exempt and not considered employees are |
| | | | | causal employees – those earning less than a |
| An employer’s mod can be controlled by | | | | certain dollar amount for example, $1,500 annually, |
| implementing solid safety programs to prevent losses | | | | domestic staff and farm laborers. |
| and once losses occur, effective claims management | | | | |
| and early return-to-work strategies to reduce claim | | | | Generally speaking, employees covered by federal |
| costs. Every employee should be engaged in | | | | employer’s legislation (Railroad Workers, |
| workplace safety. All of these things matter at the | | | | Longshoreman and Harbor Workers Act and Jones |
| end of the day because they all have an impact on | | | | Act) are exempt or not covered by state |
| your premium and ultimately, your bottom line. | | | | workers’ compensation |
| | | | | statutes. (workersxzcompxzkit) |
| Are Independent Contractors and Volunteers | | | | |
| Covered | | | | Understanding the differences in all of these |
| Figuring out who is considered a covered employee | | | | situations is important both in the application process |
| for purposes of workers’ compensation often is | | | | and purchase of workers’ compensation |
| a tricky matter and sometimes a source of litigation | | | | insurance as well as when it comes time to consider |
| when the subject of a claim. Each jurisdiction varies | | | | payment of a claim. |