Tuesday, February 19, 2013

DOUBLE CHECK THOSE RATES

If you followed politics in the United States during 2012 you no doubt heard daily comments from our congress about the impending "Fiscal Cliff". Everybody pointed the finger at someone else as being responsible for the problem. 

Well, at the last moment, congress passed several pieces of legislation that were designed to apease everyone and avoid that "cliff".  And as so often happens, somebody has to pay the bill. 
We don't yet know all the taxes we will be required to pay to "help" the situation but you can be sure there will be some added ones and some real surprises down the road. This isn't a political statement, it is just a fact of life. 

Let me give you one example. In the United States, employers are obligated to pay Federal Unemployment Taxes in addition to the regular State Unemployment Taxes. This rate is .6% of the first $7,000 of wages the employer pays to the employee or $42 per year. Well, because of the high unemployment rate the country has experienced over the past several years, many states have had to borrow from the federal government fund in order to keep their state unemployment fund solvent. 

So, retroactive to January 1, 2012 and for the year 2013 at least, if you are doing business in one of 18 states or the US Virgin Islands you are going to pay a federal rate that is somewhere between 50% and 150% higher than you have been paying in order to start paying back to the federal government the money owed by those states. Indiana appears to be the hardest hit with a 150% increase. If you live in one of these affected states and have filed your 2012 Federal Unemployment tax return you already know this but a lot of you may not know it goes for the entire year of 2013 as well. Those of you in the other 32 states may want to monitor the situation to see if your state gets on the list in the future.

I mention this because you need to factor this increase into your pricing model for your proposals. It can become a sizable number. In addition, states will most likely be raising rates again to remain solvent and avoid a shortfall. 

 What can you do about it? For starters, you should be following up on ALL UNEMPLOYMENT CLAIMS filed by employees that leave your company voluntarily or involuntarily. Keep paperwork and contest all claims that you feel should be contested and keep following them until all avenues of appeal have been explored. Paperwork is the key.

There are professional companies that will follow up on all unemployment claims against your company, attend appeal hearings on your behalf etc. They are experts, keep up to date on each state and can make your life a lot easier, not to mention save you substantial dollars in claims. I used such a company for years and it was one of the best outsourcing decisions I ever made. 

Another area you want to be vigilant about is your Workers Compensation rates. While the rates are set, you can negotiate discounts and above all, you can control the rate modification factor by having a formal safety program that helps to avoid injuries in the first place. Not paying attention to safety and not handling injuries in the proper way can cost you THOUSANDS OF DOLLARS each year. Here again, the rates are a percent of payroll so it is really incumbent on you to be heavily involved personally in every injury that occurs in your organization. 

One way to be involved in the injuries is to meet at least quarterly with your insurance company/agent and review EACH claim as to its status. For every injury that occurs, the insurance company sets up an amount, called as reserve, that they estimate it will take to resolve the claim. I found it important to check these amounts and if the claim is settled for less, ask for the unused reserve amount to be removed. I also found insurance companies don't necessarily remove that amount unless you ask, thus another important reason to have those quarterly meetings.

By the way, I required my insurance agency to submit the next year's rates at least 90 days prior to expiration of the policy to give me time to review and secure competitive proposals if I felt it necessary. Many times, insurance agents will walk into your office just a few days before the policy expires and say "here are your rates for next year". Many people are not insurance savvy so they just take the policy and swallow whatever increase is given. Take my advice on this, require your proposal to be in early, review it, require explanations for any increase and don't be afraid to change if you need to. 

The fact you are not an experienced insurance guru doesn't mean you have to accept anything they bring you. Our customers don't generally accept our price increases without explanations and most of them don't know anything about cleaning. They just know the price went up so they start making us justify our increase. We should do the same with ANY price increase we get from ANY vendor. 

Well anyway, back to my original comments--make sure you are prepared for the increases in federal and possibly state unemployment tax. If the unemployment rate continues at a high level and if congress continues to extend unemployment benefits, we could see ongoing increases for some time. Better to be prepared than surprised. 

Here's hoping you are getting your 2013 off to a fantastic start. I wish for you the very best. 

Till next time.



 

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