A workers’ compensation audit can be a very frustrating process and can result in increased end of the year premiums if not handled correctly. This article will address the typical problems associated with increased end of the year premiums from workers’ compensation audits and how to avoid these problems.
The Three Major Causes for End of the Year Premium Increases
The three major causes for increased end of the year premiums are (1) the payroll for the given year was higher than projected, (2) the insured company did not have someone who understood the auditing process work on the audit with the insurance auditor, and (3) the effect of using contractors without workers’ compensation.
1. Higher Than Expected Payroll Projections
To avoid issues with reason 1, it is important to give as accurate a projection as possible at the beginning of the year. Many businesses will not spend enough time making estimations, resulting in low projections and high end of the year premiums. It is also important to pay attention to payroll projections throughout the year. An insurance agent, business owner, or employee can compare actual payroll with expected payroll as often as each quarter. This will allow the business sufficient time to make adjustments in the workers’ comp premium throughout the year.
2. Business Does Not Utilize Someone Educated in Workers’ Compensation
For reason 2, it is important to have someone who understands how class codes work when rating employees. Different class codes for different positions have different premiums associated with them. The insurance auditor may rate an employee as a higher class code if the business is not aware of the various class codes. It is best to use someone who is not the insurance auditor who understands these codes and who has the business’ best interests in mind. This way they can work with the insurance auditor to make sure that each employee is properly rated and that the company does not receive unnecessarily high premiums at the end of the year.
3. Effect of Using Certain Contractors
Finally, the headaches of reason 3 can be avoided by understanding that contractors will need to be covered by workers’ compensation in some form. If a contractor is already covered by another employer, such as a subcontracted employee, then a business will not need to provide double coverage. However, if a business cannot show that a contractor has his or her own form of workers’ compensation insurance, then the business will need to pay for the workers’ compensation of said contractor while the contractor is working under the business. It is important to factor this into the payroll projections for the end of the year audit as well as use this as a factor as to which contractors to higher. All else equal, it will be cheaper to hire a contractor who is already covered by workers’ compensation insurance.
If you are a business and you heed this advice, then you will see that the workers’ compensation audits can be a relatively pain free and inexpensive process. Good luck!