Don’t encourage Workers’ Compensation abuse

By David Hill
Caldwell County Human Resources Director

The rising cost of Workers’ Compensation coverage can be blamed on several causes – rising payroll, large claim losses and frequency of incidents are just a few. Some, if not most, are unpredictable – if not uncontrollable – factors. But what can we do to control the controllable?

Many employees are under the incorrect perception that they will suffer a loss of income if they are injured and are forced to rely on Workers’ Compensation payments. After all, isn’t their income reduced to two-thirds of their average weekly earnings? How could any of us survive if we were injured and out of work, and our income was reduced by one-third?

The North Carolina Industrial Commission is very sensitive to and proactive toward ensuring that injured workers do not suffer financially, and most of the Workers’ Compensation rules and regulations are designed to benefit injured workers. So, how does the Industrial Commission have regulations that would reduce an injured employee’s wages?

The answer is – they don’t.

If you take an employee’s gross earnings and reduce it by the standard deductions, the employee is going to “take home” about two-thirds of their earnings. That is the premise upon which the Industrial Commission calculated the weekly benefit amount.

So, if you supplement the Workers’ Compensation payments, you actually wind up creating an incentive for the employee to profit and stay at home.

Assume an employee earns $40,000 annual salary, is married and claims no exemptions:

Average weekly earnings: $769.23
FICA: $46.37
Medicare: $10.84
Federal Income Tax: $88.69
State Income Tax: $43.71
Retirement: $46.14
Net weekly pay: $533.48
Workers’ Compensation: $512.81

This example shows that had the employee worked they would have taken home $533.48 for the week. The same employee receiving Workers’ Compensation would take home $512.81 for the week, a $20.67 weekly loss of income. However, because the weekly Workers’ Compensation income is not reportable income and therefore not taxed, the $20.67 reduction becomes moot.

When you pay an employee through any type of supplemental pay plan (use of sick or vacation time) you are encouraging the employee to remain away from work because you have created an incentive to remain at home and earn more money than they would if they returned to work.

If your entity is one of the many that supplements the perceived 33.3 percent loss of income, here are some approaches to ensure employees do not profit by being away from work:

1. The NCACC does not recommend any supplement to the perceived loss of income by allowing employees to utilize sick and/or vacation. The receipt of Workers’ Compensation alone provides that there is no loss of income. In the above example, you would spend $178 more per week than is appropriate ($9,256 annually).
2. The N.C. Local Government Retirement System states employees are not eligible for membership during any month they are in receipt of Workers’ Compensation payments and, in the above example, your entity would save approximately $45 each week ($2,300 annually) by not having to make the employer contribution.
3. The NCACC recommends that members develop a Return-to-Work (RTW) program that permits the injured employee to return to work, even if it is not within their own department. For example, there is nothing wrong with an injured paramedic, who may also be a RN or a qualified lab technician, working in the Health Department. Remove interdepartmental barriers and encourage department managers to participate in RTW programs.

The Association can provide information and assistance in developing a RTW program. Remember, Workers’ Compensation laws are intentionally designed to benefit the injured worker – as they should be – however administering the Workers’ Compensation process appropriately can save counties time and money and result in employees returning to work quicker.