PEO Consultants Blog

MOD Ratings and Government Contracts: How PEOs Help Smaller Companies Compete

Put in the simplest terms, your workers’ compensation premium is calculated by multiplying rate by exposure (i.e. payroll) by MOD rate. With the changes taking place to how the MOD rate is calculated, some organizations are worried that a change in their rate will reduce or completely remove their ability to access government contracts. A maximum MOD rate is required to be eligible to write government RFPs. Many HR departments are feeling the pressure, scratching their heads, and thinking “now what?” The major change that HR departments are faced with is the increase in the “split point” – or the base threshold MOD rate that companies must meet in order to be considered eligible for a bid. MOD rates have become a cornerstone of qualification and a way to measure a company’s safety practices. But this measurement isn’t really considered fair by many organizations, especially smaller ones. If a smaller organization experiences a minimal loss from a workers’ compensation claim, due to their smaller payroll based on the size of their company, they have fewer dollars to absorb the loss, which can in turn cause an increase in their MOD rate. Larger companies with larger payrolls do not experience this same level of threat by individual workers’ compensation claims. Many government contracts require a MOD rate no greater than 1.0, which is supposed to represent the industry average. It’s based on the concept that a MOD rate greater than 1.0 represents a safety risk that government agencies do not want to take on. But it’s not inherently true, as stated above, that a lower MOD rate accurately reflects the safety practices and reliability of an organization, especially when payroll and company size is considered.

How a PEO can help lower your MOD rating :

By nature, a PEO – or Professional Employment Organization – allows companies to outsource employee management tasks such as employee benefits, payroll and workers’ compensation, recruiting, risk/safety management, and training and development. The important element to take note of in regard to MOD rating advantages is the role they can play in risk and safety management. However, there are two ways a PEO can advantage the cost of workers’ compensation costs and MOD ratings for their member companies.

  • 1. When a company moves to a PEO, their most recent MOD rating can carry over into their agreement with the PEO, allowing them to remain at that rating while they are in contract with the PEO. So, for example, if an organization has a MOD rating of .96, but under the new calculations is expecting to see a MOD rating increase to 1.09, by moving to a PEO, they can maintain their .96 MOD rating, thus continuing their eligibility for government contracts.
  • 2. Some PEOs use what is called a Master Policy, where the MOD rating is a conglomerate rate from all of the PEO organizations, giving smaller companies the advantage that larger organizations have. These include increased payroll to deflect the cost of covering workers compensation claims, percentage proportionality for the number of claims versus the number of employees total, and more.

PEOs also offer safety handbooks and training, which can secondarily reduce the number of workers compensation incidents in the first place. If you’re a small organization concerned that the ever changing calculations for MOD ratings will impact your ability to compete for government contracts, you should contact us to discuss how joining a PEO can benefit your company. We can then help align you with the right PEO for your organization which comes with numerous other advantages! Contact us at 888-623-3240 or online for more information.


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