What Detailers Need to Know about Workers’ Compensation

Workers’ compensation basically exchanges an employee’s right to sue an employer for an injury received on the job for state-determined employer benefits paid to the injured employee. Although workers’ comp programs differ between states, they all virtually include weekly payments in place of wages as disability insurance, compensation for economic losses (past and future), reimbursement or payment of medical expenses, and benefits to dependents of workers killed on the job.

General damages for pain and suffering and punitive damages for employer negligence are generally not available in workers’ compensation plans. However, as an employer, you are not completely absolved from civil or even criminal lawsuits if negligence contributes to an employee’s on-the-job injury.

Cash benefits are established by individual states and have a maximum payment amount.

Unfortunately, many detailers who skirt IRS and state employment requirements by using so-called “independent contractors” (ICs) have learned the hard way how important and valuable this business parachute can be. When an IC is hurt while performing services for you and the state determines the IC was under your “direction and control” — thereby being your employee and covered by workers’ compensation policies — all medical payments, disability payments, and other expenses fall squarely on you.

In addition, you can be fined $10,000 to $25,000, depending on the state, for violating the law. You also are subject to an additional $1,000 a day for each day the employee worked that you did not have worker’s compensation coverage. States also can revoke your business license.

Remember, the general liability insurance coverage you hold doesn’t cover employee or independent contractor injuries. Your vehicle insurance may cover some expenses of an injury in a motor vehicle accident, but if an IC hurts his back while pushing a car or slipping on a wet floor, the expense of medical treatment and rehabilitation will come straight out of your pocket.

The state will investigate the nature of the job and the true relationship of the worker to the company compensating the worker. Under a true IC relationship, the contractors operate their own business, insure themselves and pay their own operating expenses. If they perform services for your company in a vehicle owned and insured by you, and do not have any risk, they are probably going to be classified as your employee driving a company-owned vehicle.

In most states, workers’ comp is provided by private insurance companies, although several states maintain their own funds. Insurance companies use a history model of injury types, frequency of occurrence, severity of injuries, and long-term prognosis of injuries, which are then assigned to a specific class of workers of a specific job type.

Unfortunately, there is no class for detailers. Instead, they are thrown in with carwashes or body shops, which are more dangerous than detailing and have more incidences of accidents and employee injuries. By comparison, office clerks have a much lower premium than detailers, but outside salespeople or anyone who regularly drives will have a higher premium rate than the office clerk, simply because there is more risk involved in driving a vehicle.

Premiums are further calculated by the length of time a company is in business, the history of claims or losses and payroll total. The premium calculation includes an “experience modifier,” more commonly known as an “EX MOD,” which is basically a discount for experience.

Thus, the higher your total payroll, the more employees you have working, and/or the more work you are performing, means you have a higher risk of a claim being filed by an employee.

When calculating workers’ compensation premiums it is also important to remember to subtract any gratuities paid to your detailers on payroll checks. Some customers paying by check or credit card will add in a gratuity for the worker(s). Gratuities should not be included in the calculation of premiums. In the event you have submitted payroll amounts in which the gross pay included gratuities, your insurance company should refund that amount at the end of the policy period, but you have to ask.

Workers’ comp is a major cost of business, and it has long been a hot topic among small business owners. There is constant political action by business and labor groups to improve or overhaul the system, which is filled with problems ranging from false claims to termination of employees who file a claim. The major issues have remained that business groups seek to limit the cost of workers’ compensation coverage, while labor groups seek to increase benefits paid to workers. Obviously, costs must go up to increase benefits.

Only recently has workers’ compensation insurance been offered at competitive pricing, a move that state agencies have pushed to help the troubled market. Even so, the cost of workers’ comp policies from one carrier to another remains basically the same.

Obtaining the best rates starts with your application process. An agent will submit the application to a carrier, where an underwriter will make determinations about the acceptance, risk factors and premium.

It is rare for you to speak to an underwriter directly so your application and supporting documentation must present an accurate picture of your detail operation. Having an agent that specializes in the auto service industry can be of tremendous help in the presentation of your information.

The more information you can provide to present how your detail business operates responsibly, the better off you will be. For example, if you have an operations policy manual, send this along with your application. If you hold weekly or monthly safety meetings, send a schedule of meeting dates, topic and presenter information, including qualifications. If you have a formal training program for new detailers send the details of this program. If you send your detailers to training courses, submit the details and copies of certificates or registration.

As with other types of insurance, you will have to provide a copy of any “loss runs” from your previous insurance carrier, typically for the past two or three years. These are basically report cards showing how many claims you have had during the term of the policy, the types of claims and how much money was paid on your behalf, along with the current status and expected closure of the claim.

Most detail businesses need worker’s comp if they have people other than themselves or family working in their shops. You cannot suffer the consequences if you get caught without it.

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