MOD Ratings and Government Contracts: How PEOs Help Smaller Companies Compete
By Chris PetersonFirst published Updated
The short answer
Many government contracts set a maximum workers' comp experience mod, often 1.0, and a single claim moves a small company's mod more than a large company's. A PEO can help through how it structures your coverage (your own policy and mod, or its pooled master policy) and through safety programs that prevent claims; ask how a move would affect the mod you report on bids.
In the simplest terms, your workers' comp premium is your rate times your exposure (payroll) times your experience mod. The mod is also a gatekeeper: many government requests for proposals set a maximum mod to be eligible to bid.
Why does the mod matter for government contracts?
Mod rates have become a cornerstone of qualification and a stand-in for a company's safety practices. Many government contracts require a mod no higher than 1.0, the industry average, on the idea that a higher mod means more safety risk. When the rating bureau changed how mods are calculated by raising the “split point,” many companies worried a higher mod would cost them their eligibility to bid.
Why are small companies hit harder?
Because the measure isn't really fair to them. A small company has a smaller payroll to absorb a loss, so even a modest claim can push its mod up. A large company with a large payroll barely feels the same claim. A higher mod doesn't always mean a less safe company, especially once size is considered.
How can a PEO help with your mod?
A PEO lets you outsource benefits, payroll, workers' comp, recruiting, safety and training. For mods specifically, it depends on how the PEO structures workers' comp:
- Some PEOs keep a separate policy for each client, so your own mod and history stay with you while the PEO helps manage claims and safety.
- Others use a master policy, where your employees are covered under the PEO's pooled experience. That gives a small company something larger organizations have: a big payroll base to absorb individual claims.
PEOs also provide safety handbooks and training, which cut the number of claims in the first place.
What should you ask before moving?
Ask how the PEO's comp program would affect the mod you report on bids, and confirm what the contracting agency accepts. If you're a small company worried that mod calculations will keep you out of government work, it's worth comparing PEOs with that question at the top of the list.