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When talking to employers about how a work comp loss time claim affects the experience modifier rate (mod), we are often asked, “can we just pay our employees when they are temporary totally disable from work instead of the insurance company to relieve the effects on the mod?” Let’s dig into that question.  Spoiler alert: the answer is, It Doesn’t Pay to Pay!

First, I’ll briefly describe the mod. The mod is that state assigned number that drives how expensive a company’s workers’ compensation premiums are.  Factors that impact the calculation of the mod include a company’s actual losses, payroll numbers and class codes, expected losses (both primary and excess), and other state determined industry rates. Among these factors the loss history is the main area a company can improve upon to achieve a lower mod, i.e., lower work comp premiums. 

So what numbers are included in the loss history? Generally speaking in Minnesota, for:

Lost time claims: total amount spent plus total amount of reserves if the claim remains open.

Medical only claims: Total amount spent on claims, plus the amount in reserves if the claim is still open. Then reduce that by 70%…SEVENTY PERCENT!

That 70% reduction is huge and it is the reason why we push so hard for employers to bring employees back to some form of light duty ASAP. 

If you are thinking to yourself, a few lost time claims hitting the mod is easier and cheaper than paying an employee for light duty, think again. The three complete years of loss history ending one year prior to the effective date are included.  So if the new rate is being calculated for 2019, the years 2015, 2016, and 2017 would be considered.

That means that one bad work claim would actually hit your mod for 3 consecutive years.  It’s haunting and you could be paying more in the long run due to its effects on your mod.

Mod calculations aside, studies show that employees who get back to some form of work sooner, recover faster. Speaking from experience, once an employee has been taken off of work, it is harder to get them released for any form of light duty.

It is also important to keep in mind that the frequency of claims has a large impact on the mod. For example, many minor claims could mean a higher mod than a few high dollar claims.

So back to that question, can the employer pay the lost wages instead of the insurance company.  Well, it doesn’t pay, to pay. MN Statue 176.221 sub 9. Payment of full wages says:

“An employer who pays full wages to an injured employee is not relieved of the obligation for reporting the injury and making a liability determination…If the full wage is paid the employer’s insurer or self-insurer shall report the amount of this payment to the division and determine the portion which is temporary total compensation for purposes of administering this chapter and special compensation fund assessments.”

It goes on to say, “The employer shall also make appropriate adjustments to the employee’s payroll records to assure that the employee’s sick leave or the vacation time is not inappropriately charged against the employee, and to assure the proper income tax treatment for the payments.”

In other words, the lost wages the employer pays, still hits the mod and actually creates more work for the employer, (my sympathies go out to the payroll administrators who would have to deal with this). Failure to report the lost wages paid would result in a penalty. 

Work comp attorney Mike Kilbury says, “from my perspective if done appropriately, there is more documentation required and there is virtually no potential for savings. I don’t see an upside to that.”

I hope you found this helpful. Thanks for reading!