If you're an employer, chances are you've already had a run-in with workers' compensation insurance—or you're bracing for the day you do. And while having coverage is essential, how you manage it can make or break your business. One wrong move, even a small oversight, can lead to expensive claims, penalties, or lawsuits.
We’ve seen it firsthand: businesses with the best intentions tripped up by avoidable errors. So whether you're a seasoned HR pro or a small business owner wearing 12 hats, avoiding these seven costly mistakes could save you serious money, stress, and legal headaches.
Let’s break them down.
1. Misclassifying Employees and Job Roles
Misclassifying employees is one of the most common—and costly—mistakes employers make when setting up their workers’ comp policy. This can happen due to simple clerical errors, lack of understanding of job classifications, or an attempt to reduce premiums by listing high-risk jobs as low-risk. However, misclassification can lead to serious consequences.
Insurance premiums are determined based on the risk level of each job category. For instance, a construction worker carries a much higher risk than a receptionist. If a business mistakenly classifies a roofer as a clerical employee, not only is the insurer likely to catch this during an audit, but the employer may also be on the hook for backdated premium payments, penalties, or denied claims.
A logistics company we worked with had drivers listed as office staff. Once discovered, their insurer retroactively adjusted premiums for three years and demanded a $36,000 payment. It was an honest mistake caused by an outsourced HR firm—but the financial burden fell on the business.
To avoid this, regularly review your job roles and verify them against your state’s classification codes. Consider scheduling annual reviews, especially if roles evolve or your workforce changes.
2. Not Reporting Injuries Promptly
Delaying the reporting of a workplace injury is a mistake that can trigger a domino effect of problems. Some employers hesitate to report incidents out of fear that it might raise their insurance premiums. Others wait because they think the injury isn’t severe or might resolve quickly. However, this delay can end up costing more than it saves.
Most states have strict deadlines for reporting injuries. In some places, such as California, employers are required to report a known injury within one working day. Failing to do so could lead to claim denial, delayed benefits, or even legal penalties.
In one notable case, a construction firm failed to report a back injury within the required timeframe. As a result, the injured worker turned to litigation rather than filing a workers’ comp claim. The court costs and settlement ended up far exceeding what the original claim would have cost.
To stay compliant and protect both your business and employees, create a streamlined process for incident reporting. Train supervisors to understand the importance of immediate documentation and provide easy-to-use tools or kits to speed up the process.
3. Ignoring Return-to-Work Programs
One of the most overlooked strategies in workers' comp management is implementing a return-to-work (RTW) program. Some employers believe it’s better to let injured workers fully recover at home. While that sounds supportive, keeping employees out longer than necessary can actually prolong recovery and inflate your claim costs.
RTW programs allow injured workers to return in a modified or light-duty capacity while they heal. This not only keeps the employee engaged but also reduces temporary disability payouts and signals to insurers that your company takes proactive cost-control measures seriously.
At a food processing facility we advised, we introduced transitional roles like quality control observations and training support tasks for injured workers. Over 18 months, their overall workers’ comp claims dropped by 27%, simply because fewer employees stayed off the job long-term.
Building an RTW program involves working closely with healthcare providers to understand restrictions and identifying safe, modified roles that align with those restrictions. Document the process and keep communication open between HR, supervisors, and employees.
4. Failing to Document Incidents Properly
When workplace incidents occur, proper documentation isn’t just about compliance—it’s your first line of defense in case a claim turns into a dispute or a lawsuit. Unfortunately, many employers either rely on verbal recollections or take minimal notes, thinking the situation is minor. That’s a risky assumption.
Detailed, timely, and accurate documentation can protect you from fraudulent claims and ensure your insurer has everything they need to process legitimate ones. It also reflects your commitment to workplace safety and can be used to identify patterns that inform better training or hazard control.
A thorough incident report should include:
- Exact date, time, and location of the incident
- Description of how the incident occurred
- Statements from the injured employee and witnesses
- Any photographic evidence, if available
- Immediate medical or first-aid steps taken
Use standardized forms and require completion within 24 hours of an incident. Keep records securely stored and regularly reviewed by HR or safety personnel.
5. Choosing the Cheapest Policy Over the Right One
When shopping for workers’ comp insurance, it’s natural to look for the most affordable option. However, choosing a policy based solely on price often leads to unpleasant surprises down the line. Cheap coverage might come with limited benefits, unresponsive claims departments, or fine print that excludes key protections.
We worked with an HVAC contractor who opted for a budget policy that didn’t cover workers outside their home state. When a technician was injured on a job across state lines, the insurer denied the claim. The employer was then sued personally for the worker’s medical expenses and lost wages.
To ensure you’re truly protected, compare more than just the premiums. Look at coverage specifics, provider reputations, claims responsiveness, and financial strength. Use third-party ratings like A.M. Best or check complaint ratios from the National Association of Insurance Commissioners (NAIC).
Working with a broker who understands your industry can also help you customize coverage based on the actual risks your business faces.
6. Overlooking Workplace Safety Culture
Some employers treat workers’ comp as a reactive process—something to deal with after an injury. In reality, the foundation of effective workers’ comp management is a proactive safety culture.
Companies that prioritize safety not only prevent injuries but also create environments where employees feel valued and protected. This results in fewer claims, lower premiums, and better employee morale.
Developing a strong safety culture involves more than just occasional training. It means embedding safety into daily operations and leadership behaviors. Conduct routine safety meetings, involve employees in risk assessments, and empower workers to report hazards without fear of retaliation.
We’ve seen businesses dramatically reduce claim frequency simply by incentivizing safe practices, updating equipment, and holding managers accountable for safety metrics. The savings on premiums alone can justify the time and effort spent.
7. Not Reviewing Policies Annually
Workers’ comp policies are not one-size-fits-all, nor should they be treated as static. Your business evolves—new job roles emerge, operations expand to new locations, or your payroll grows. If you don’t update your policy to reflect these changes, you could end up overpaying, underinsured, or non-compliant.
Annual policy reviews help catch discrepancies before they become liabilities. For example, one startup we advised expanded rapidly from 12 to 50 employees in a year. Because they didn’t update their policy, they were hit with $14,000 in backdated premiums during an audit.
Review your workers’ comp policy each year with your broker. Make sure job classifications are up to date, payroll estimates are accurate, and coverage extends to all business operations, including new states or subcontractors.
Also, ask your broker to walk you through any new regulations or risks that might apply to your industry. A little time invested now can save thousands later.
Final Thoughts: Protect Your People and Your Business
Workers’ compensation is more than just a compliance obligation—it’s a reflection of your values as an employer. It shows whether you prioritize safety, fairness, and financial responsibility.
Avoiding these seven costly mistakes isn't just about saving money—it's about building a resilient and trustworthy workplace. Whether it’s documenting thoroughly, updating policies regularly, or investing in a return-to-work plan, each step you take adds up to better outcomes for your business and your team.
0 Comments