Impact of a Temporary Staffing Company’s Workers’ Compensation on EBITDA



Can you significantly boost your temporary staffing company’s EBITDA by raising revenues without substantially increasing expenses or cutting costs?

Here’s how Nixer Comp can help improve your EBITDA by reducing your Workers’ Compensation insurance expenses without having to increase revenue.

Focus on Cutting Business Expenses to Increase EBITDA

Reducing business expenses (general and administration costs) is a critical factor in increasing EBITDA, with the results more immediate compared to other, more time-consuming options. For example, with an operating margin (operating income plus depreciation and amortization) of 10%, it takes $10 of revenue to make $1 of EBITDA. So, if you reduce an expense and save $1,000, it is as if the company increased revenue by $10,000.

The key is to review all your general and administrative expenses to determine areas where you can reduce costs. For example, among the largest expenses for temporary staffing companies is Workers’ Compensation insurance. You can protect and increase your EBITDA and profitability by reducing your Workers’ Comp cost.

Let’s say you can save $100,000 on your Workers’ Compensation cost at a 10% operating margin (operating income plus depreciation and amortization); it would have the same effect as if the company added $1 million in revenue.

Sound too good to be true? Let us show you how.

Ensure Proper Classification Codes

Your experience modification factor (ex-mod) drives Workers’ Compensation expenses. If your losses are fewer than expected, your mod will improve; if losses are more, it will suffer. We help temporary staffing companies minimize losses outside expected losses so their ex-mods are not negatively impacted and driving up costs.

We ensure your employee classification codes are correct. Each position in every industry has a class code based on its job description and is assigned a value which is factored into the Workers’ Comp rate. Therefore, classifying each employee correctly at the outset is critical to reflect your expected losses.

Here’s how: Let’s say your expected losses for the year are $100,000 and you exceed this amount. One of your employees is injured at a host employer/client who owns a warehouse. The employee was classified as “clerical,” but his position involved operating a forklift, and he suffered an injury while doing so. He should have been classified with a rate that reflected the actual work and position, which would have had a rate much higher than that of a clerical worker. This one loss will cause your ex-mod to increase your premium for three years and your expenses, which will impact your EBITDA.

We help temporary staffing firms classify employees with our Classification Determination Rating (CDR) Request System. You can submit a class-code request for temporary assignments via our CDR portal. We will review the request and return a formal, documented underwriting, risk management, and classification determination. We also look at your host employer and advise you on its classifications.

Review of Host Employer’s OSHA Record

We help temporary staffing clients understand the risk you’re assuming with the host employer and how the host employer’s safety record can impact your ex-mod. We will look at the host employer’s safety record to determine whether it will positively or negatively impact your losses.

In addition, we will train you on what type of questions to ask the host employer so you understand the work performed, the location, if any factors at the site are creating problems and losses, if employees are correctly classified, and if training or certification is required for certain jobs. When you understand the lay of the land ahead of time, you can speak with the host employer about issues and measures to address these issues.

Every quarter, we will provide you with performance review reports listing the origin of the losses, the types of injuries, the location, etc. so that you can demonstrate to the host employer the impact these losses are having on your Workers’ Comp and what needs to be done to improve safety to reduce claims. If changes are not made, you can increase your pricing to reflect higher-than-expected losses based on the host employer’s record. You don’t want the host employer to transfer its risks to your staffing company.

On the other hand, host employers with a good safety record will enable you to tighten your pricing and be more competitive in the market.

Consider a Deductible Workers’ Comp Plan

We help clients reduce Workers Comp costs and improve EBITDA. With a deductible program, you retain a portion of each claim, leveraging your good safety record and claims performance. For example, when changing from a Guaranteed Cost to a Large Deductible plan, we saved a temporary staffing company $2.85 million in premiums a year. This reduction in premium would have the same impact on EBITDA as adding $28.5 million in revenue.

Talk to us about how we can help reduce costs and impact your EBITDA. Together with you, we will partner to help create a stronger, more valuable company.