Properly Plan Layoffs To Control Workers Comp Costs

Layoffs are an unfortunate reality of being in business. They can also greatly impact your workers’ compensation experience.

Layoffs are an unfortunate reality of being in business. They can also greatly impact your workers’ compensation experience. Statistics show that workers comp claims spike by an average of 50 percent after a plant closing or other mass layoff is announced. This jump in claims always results in a future jump in the employer’s workers' compensation premiums, as claim frequency is the primary factor in the calculation of the employer’s workers' comp premium.

This article focuses on discouraging a workers' compensation catastrophe during a workforce reduction.

Here are some things you can do to prepare for layoffs.

Notify your broker and claims administrator

Notify your broker and claims administrator or third party administrator (TPA) so that they can plan to handle the likely additional workers' comp claims quickly. Include the human resources department and legal counsel in this planning session. Make sure that you do not automatically layoff all employees out on workers' compensation because this can be seen as illegally retaliating against the employees for filing for workers comp.

Place any workers currently out of work on TTD 

Try to place any workers currently out of work on TTD (temporary total disability benefits) back to work before their positions are eliminated. Consider working with an offsite transitional duty vendor so that employees who are on transitional duty can be employed elsewhere until they are fully recovered and at maximum medical improvement (MMI). Be prepared to place ALL employees who are on transitional duty in a paid position elsewhere. Charitable positions are also an option as is home-based employment

Once these workers do not have any work to go back to, it can be hard to show that they are capable of working. Therefore, try to get as many back to work prior to the layoff as possible.

Limit severance payments to those employees who are at work 

Limiting severance payments to those employees who are actively at work may discourage the filing of workers’ comp claims without merit. This may make the lure of getting a quick workers’ comp settlement less attractive because that is a more tenuous source of income than unemployment benefits.

Eliminate disincentives to collect unemployment compensation benefits 

Employees who are less anxious about their source of income are less likely to commit work comp fraud if they know they will have another source of income while they look for another job.

Learn how your state handles unemployment compensation in conjunction with workers' compensation. Some states allow both at the same time, other states allow one or the other, and some states allow an offset (reduction) in workers' comp benefits for employees drawing unemployment compensation.

In some states, an employee is only eligible for unemployment benefits if they are “able and available” to work. Thus, if they are disabled, their unemployment benefits could be jeopardized. Employers should challenge unemployment claims of employees on workers’ compensation, if possible in your state.

Use outplacement professionals 

Use outplacement professionals and offer services that can make finding part-time or alternate employment possible. This makes the transition smoother when employees know they will have a source of income.

No one likes to be treated disrespectfully, so consider the human side of this story. Take the extra effort and plan to make it as painless as possible for the people who have been working for your company for many years.

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