Workers’ compensation has become a major expense for businesses, especially in high-risk industries like power and energy, process plants, and heavy industrial projects. According to the National Council on Compensation Insurance (NCCI), private carriers reported $42.5 billion in net written premiums in 2022, reflecting an 11.3% increase from 2021. Meanwhile, the average cost of workers’ compensation claims in 2020-2021 was $41,757.
These rising costs aren’t just a statistic—they’re a real and growing challenge that can’t be ignored. For HR managers, business owners, or operational leaders in high-risk sectors, proactive strategies are key to managing this financial burden and ensuring long-term stability.
This blog explores the driving factors of rising workers’ compensation costs and actionable strategies to reduce your financial exposure, with insights on how APS Solutions can set your business up for success.
Why Workers’ Compensation Costs Are on the Rise
Understanding the underlying factors driving the surge in workers’ compensation costs is critical for creating effective solutions. Several key trends are shaping the landscape:
1. High Injury Rates in High-Risk Industries
Sectors like power plants, construction, and refineries inherently carry higher risks due to the nature of the work. From handling heavy machinery to exposure to hazardous materials, the likelihood of workplace injuries is significantly higher, driving up insurance premiums and claims.
2. Increased Medical Costs and Legal Fees
The cost of medical treatments continues to climb, making workers’ compensation claims more expensive overall. Additionally, legal disputes over claims and settlements can add further financial strain.
3. Regulatory Challenges and OSHA Compliance
Stricter industry standards and regulations from organizations like OSHA mean businesses must invest more in compliance and safety programs. While essential, these can increase operational expenses, especially for companies already stretched thin.
4. Fraudulent Claims and Misclassification Penalties
Workers’ compensation fraud, such as exaggerated injuries or falsified incidents, remains a persistent issue. Similarly, businesses face severe penalties if employees are misclassified, which often results in higher premiums.
These challenges show why companies in high-risk industries must adopt tailored and proactive measures to control costs while keeping their workforce safe.
Proactive Strategies for Controlling Workers’ Compensation Costs
Employers can’t control every factor contributing to rising costs, but they can take steps to mitigate their risk and manage expenses effectively. For businesses in high-risk industries, these strategies are critical.
1. Conduct Comprehensive Risk Assessments
Start by identifying potential hazards in your workplace. Regular risk assessments will allow you to implement targeted safety protocols that reduce the likelihood of workplace injuries.
Systematic Identification:
Risk assessments shouldn’t just focus on easily visible hazards. They must delve into all aspects of the workplace, including:
- Physical hazards (machinery, equipment, heights, confined spaces).
- Chemical hazards (exposure to toxic substances).
- Ergonomic hazards (repetitive motions, heavy lifting).
- Environmental hazards (noise, temperature extremes).
- Psychosocial hazards (stress, fatigue, workplace violence).
Process Analysis:
- Assess the entire workflow, from material handling to final product delivery. Identify potential hazards at each stage.
- Consider the interactions between workers, equipment, and the environment.
Data-Driven Approach:
- Analyze past accident and injury data to identify trends and patterns.
- Use industry-specific data and best practices to inform your assessments.
The “Regular” Aspect: Continuous Improvement
Dynamic Environments:
Workplaces, especially in industries like power and energy, are constantly evolving. New equipment, processes, and regulations can introduce new hazards.
Regular assessments ensure that safety protocols remain relevant and effective.
Frequency:
- The frequency of assessments should be determined by the level of risk. High-risk environments may require daily or weekly assessments, while lower-risk environments may require monthly or quarterly assessments.
- Any time that a change occurs within a work environment, a new risk assessment should be conducted.
Employee Involvement:
- Engage employees in the assessment process. They often have firsthand knowledge of potential hazards.
- This also fosters a culture of safety and empowers workers to take ownership of their safety.
The “Targeted Safety Protocols” Aspect: Effective Mitigation
Prioritization:
- Not all hazards are created equal. Prioritize those that pose the greatest risk of serious injury or fatality.
- Focus on implementing control measures that will have the greatest impact.
Hierarchy of Controls:
- Follow the hierarchy of controls to minimize risks:
- Elimination (remove the hazard).
- Substitution (replace the hazard with a safer alternative).
- Engineering controls (isolate workers from the hazard).
- Administrative controls (change the way work is done).
- Personal protective equipment (PPE) (provide workers with protective gear).
Documentation and Communication:
- Document all risk assessments and safety protocols.
- Communicate safety information clearly and effectively to all employees.
- Regularly review and update protocols as needed.
In essence, comprehensive and regular risk assessments are not just a compliance requirement; they are a strategic investment in worker safety and cost control. By proactively identifying and mitigating hazards, employers can create a safer work environment, reduce workers’ compensation claims, and improve overall productivity.
2. Introduce Safety Training Programs
Workplace training tailored to the unique challenges of your industry can reduce injury rates and promote a safety-focused culture. Employees who understand the risks and proper safety practices are better equipped to prevent accidents.
Addressing Unique Hazards:
- Generic safety training often falls short in high-risk industries. Power and energy, for instance, have very specific hazards: electrical arcing, confined space entry, high-pressure systems, etc.
- Tailored training addresses these unique hazards directly, equipping workers with the knowledge and skills they need to operate safely.
Realistic Scenarios and Simulations:
- Effective training goes beyond lectures and manuals. It incorporates realistic scenarios and simulations that mimic actual workplace conditions.
- This allows workers to practice safety procedures in a controlled environment, reinforcing their understanding and building confidence.
Equipment-Specific Training:
- Operating complex machinery and equipment requires specialized training.
- Workers must understand the specific safety features, operating procedures, and maintenance requirements of the equipment they use.
Reducing Injury Rates Through Knowledge and Awareness:
Hazard Recognition:
- Training empowers workers to recognize potential hazards before they lead to accidents.
- This includes understanding the warning signs of equipment malfunctions, hazardous material leaks, and other potential dangers.
Proper Safety Practices:
- Training reinforces proper safety procedures, such as lockout/tagout, fall protection, and confined space entry protocols.
- It emphasizes the significance of adherence to these procedures and the risks of non-compliance.
3. Implement a Return-to-Work Program
When injuries occur, minimizing employee downtime is crucial. Return-to-work programs help injured employees recover while maintaining productivity through modified or light-duty tasks. This limits both lost-time incidents and temporary disability costs.
The High Cost of Downtime:
Direct Costs:
- Lost productivity: When an employee is off work, their tasks may fall behind, impacting project timelines and overall efficiency.
- Temporary disability payments: These payments add a significant financial burden to workers’ compensation costs.
Indirect Costs:
- Decreased morale: Other employees may feel burdened by increased workload, leading to decreased morale and potential resentment.
- Potential for increased errors: less experienced workers may be tasked with jobs they are not fully trained for.
- Difficulty in filling the role: finding qualified temporary workers can be difficult, especially in specialized industries.
The Benefits of Return-to-Work Programs:
Accelerated Recovery:
- Staying active and engaged in work, even in a modified capacity, can promote faster physical and psychological recovery.
- It helps injured employees maintain a sense of purpose and normalcy.
Reduced Lost-Time Incidents:
- By offering modified or light-duty tasks, employers can keep injured employees productive, minimizing the time they spend completely off work.
- This directly translates to lower lost-time incident rates.
Lower Temporary Disability Costs:
- Keeping employees working, even in a reduced capacity, reduces the need for full temporary disability payments.
- This has a direct and significant impact on workers’ compensation expenses.
4. Partner with APS Solutions for Strategic Workforce Management
APS Solutions specializes in risk mitigation and workforce management, offering expertise in compliance, safety protocols, and cost-control strategies. By partnering with industry experts, businesses can reduce their workers’ compensation burdens and maximize operational efficiency.
Pre-Employment Screening: A Key to Preventing Workers’ Compensation Claims
One of the most effective ways to manage workers’ compensation costs is by focusing on prevention, starting with hiring the right people. Thorough pre-employment screening is a critical first step.
Why Screening Matters
Every hire brings potential risks, especially in high-risk industries. Employees who are physically unfit for certain roles or lack proper training may be more prone to workplace accidents, driving up claims and premiums.
APS Solutions’ Screening Process
APS Solutions offers a comprehensive approach to pre-employment screening, tailored to high-risk environments. Here’s what is involved:
- Background Checks – Verifies the candidate’s history and qualifications.
- Drug Screenings – Ensures safety and compliance with workplace policies.
- Skills Assessments – Evaluates the candidate’s technical and practical capabilities.
- Fit-for-Duty Tests – Confirms whether potential hires meet the physical demands of the role.
This rigorous vetting process ensures businesses hire well-qualified, safety-conscious employees while reducing the likelihood of future claims.
Leveraging Contingent Labor to Minimize Risk and Liability
Hiring contingent or project-based labor is another effective way to manage workers’ compensation costs in industries where demand fluctuates or turnover is high.
Benefits of Flexible Staffing
- Reduce Long-Term Liabilities: Contingent labor reduces the financial strain of maintaining a full-time workforce during project downtime or seasonal fluctuations.
- Adapt to Workforce Demands: Quickly scale your workforce up or down to meet the specific demands of a project, eliminating unnecessary expenses.
- Transfer Liability: With APS Solutions’ Employer of Record (EOR) services, workers’ comp liability is shifted away from your business.
Why Partner with APS Solutions?
APS Solutions provides pre-screened and safety-trained contingent labor tailored for high-risk industries, offering true peace of mind. Their EOR services also handle payroll, benefits, and claims management, reducing your administrative burden while ensuring compliance with OSHA standards.
Build a Strategy for Success with APS Solutions
As costs continue to rise, businesses in power plants and other high-risk industries cannot afford to be reactive when it comes to workers’ compensation. Proactive strategies—risk prevention, targeted workforce management, and compliance-focused staffing—are not just recommended; they’re essential.
APS Solutions brings a wealth of expertise in pre-employment screening, contingent labor, and risk mitigation. By partnering with APS Solutions, businesses gain a strategic ally committed to optimizing efficiency, reducing risks, and controlling costs.
Contact APS Solutions today to explore how we can help your business reduce workers’ compensation costs and achieve long-term success.
FAQ: Workers’ Compensation Cost Control for High-Risk Industries
Navigating the complexities of workers’ compensation can be challenging, especially for businesses in high-risk industries. Below are some frequently asked questions that address common concerns and provide insight into how APS Solutions can help reduce liability and control costs.
Q: What industries are most impacted by rising workers’ compensation costs?
A: Industries such as energy, process plants, heavy industrial construction, and manufacturing face the highest increases due to hazardous job environments.
Q: How does pre-employment screening help lower workers’ comp costs?
A: Proper screening helps businesses place only qualified, physically capable, and safety-trained workers in roles, reducing the risk of injury and claims.
Q: What are the advantages of using contingent labor for high-risk job sites?
A: Contingent labor reduces long-term workers’ compensation liability, allowing companies to scale their workforce without the financial burden of full-time employment risks.
