In this series, we’ve talked about what an experience modification rate (EMR) score is and how it’s calculated. In this post, we’re going to dive deeper into the impact that your EMR score has on your finances and business, in general.
Quick recap. Insurers use the EMR score to calculate the rate a company will pay for workers’ compensation insurance. Basically, it’s the equivalent of a credit rating, but for safety. And just as a higher credit rating will cost you more money in your personal life, a higher EMR will do the same for a construction business.
The calculation formula is fairly complex, with a lot of moving parts, but in broad terms, the more incidents you’ve had, the more serious they are and the higher your claims have been in the past, the higher your score is going to be. A score of “1” means your company is of average risk for losses. Any score above “1,” and you’ll be paying more for worker’s comp than your peers.
So, the first impact of an EMR score is pretty obvious: insurance rates. Worker’s compensation is a significant expense. According to the Center for Construction Research and Training, worker’s compensation accounts for 3.6% of total compensation costs in construction, which is more than twice the average for all businesses. Insurers take the base rate, and then multiply it by a company’s EMR score. If your EMR is 1.25, you’ll pay 25% more than the base rate. If it’s 0.75, you’ll pay just three-quarters. To put it more plainly, if the base rate is $200,000, a company with an EMR of 1.25 would pay $250,000, whereas one with a score of 0.75 would pay $150,000.
But that’s far from the only influence the EMR score has on a construction company. When owners are evaluating general contractors (GCs), they take the EMR score into account. In turn, when GCs are evaluating subcontractors, the EMR score is often one of the determining factors. After all, the GC and the owner bear significant risk for those that work under them. They don’t want to hire a company with a poor safety record who’s likely to have a significant number of recordable safety incidents.
What’s more, a low EMR can indirectly have a negative effect on your reputation with partners and even potential employees. Even if the rating itself isn’t well known, the factors that go into calculating it typically are. Because, if you have a high EMR rating, that means you have had a higher than average number of employees who suffered on-the-job injuries serious enough to qualify for workers’ compensation. If you’re a worker or a partner who has a choice, who’s going to choose to work with the company that’s more likely to get your or your people hurt or worse?
If you’re skeptical, check out this 2019 article from ENR. Dutra Group, a marine contractor, lost a bid for an $8.9 million pier substructure repair project at least in part due to the firm’s EMR rating. In another case, Michigan-based general contractor George W. Auch Co. used to automatically reject bidders with EMR scores over “1,” though they have since changed their policy.
The bottom line? A company with a lower EMR is likely to win more business than a company with a higher one, and they’ll also have lower costs, because not only are they providing a safer work environment, but they’re also paying less for worker’s compensation.
GoContractor provides a platform that makes safety training less costly, more efficient and more effective for subcontractors. We’ll go into more detail in subsequent posts about how GoContractor can specifically help your company lower your EMR, but if you just can’t wait, get in touch. We’d be happy to speak with you.
