Workers Compensation Audits
In all our years of providing clients workers compensation
coverage, we can think of nothing that is more frustrating to a client than being required to pay additional premiums after a policy year has expired. There are 4 reasons why this happens, and they all entail the workers compensation audit
- The projection of payroll for the upcoming year was incorrect.
- No one paid attention to the projections during the policy year to be sure it was accurate.
- The insured did not understand the impact of utilizing contractors without workers compensation coverage in their business.
- When the auditor arrived to do the workers comp audit, the insured did not have someone working with the auditor that fully understood the workers compensation premium audit process.
Let's look at each of these reasons in detail so you do not have the same frustration.
- The projection of payroll for the upcoming year was incorrect. Care must be taken to be sure that projected payroll for each of the entities workers compensation class codes is as close to what payroll will be at the end of the year. Many times a client will just throw figures out there because they have something more important to do. That's fine until that fateful day they received the bill for the additional workers compensation premium. Companies that have highly rated workers compensation class codes are particularly hard hit because the impact those rates have on premiums.
- No one paid attention to the projections during the policy year to be sure it is accurate. This is so easily done but checking seems to fall off everyone's radar. The insurance agent could provide this service by setting up quarterly diaries and then contact the client to see what their actual payroll is year to date. That compared to the projected payroll provides the client an update as to what the premium audit may look like. It will give the client the time to make adjustments in their workers compensation premium payment or begin accruing for the additional premium due to the audit.
- The insured did not understand the impact of utilizing contractors without workers compensation coverage. Workers compensation coverage is a statutory requirement and is there to protect the employee from injury sustained on the job. That is the sole purpose. Therefore a company that provides workers compensation coverage to its employees will provide the same coverage to anyone that comes on the work premises to perform work if they are not protected by their own workers comp policy. This includes subcontractors. So when the insurance company auditor arrives and sees where a roofer replaced your building's roof, he/she will ask for a certificate of insurance showing where the roofers had workers compensation coverage through their employer. If a certificate cannot be produced the auditor will include the roofer's compensation on your audit. Roofer workers compensation class code carries one of the highest rates of all class codes.
- When the auditor show up to do the audit, the insured did not have someone working with the auditor that fully understood the workers compensation premium audit process. How many times have I seen this happen! When the workers comp auditor shows up, they must check the business owners books to determine what the actual payroll was. Further they then must place each employee into a workers compensation class code and it is that selection that impacts how much a business must pay for their workers comp. If employees are not placed in their proper code, they are miss-rated and many times they are place in a code that carriers a higher rate. It is important for someone in the business to understand the various class codes and understand the job functions of the various employees. Without that assistance, the auditor is sometimes left to guess and guess whose advantage the guessing will fall. That's right the insurance company. So always be involved in the audit process.
There you have it. Four easy ways to be sure you do not get an unexpected workers compensation premium audit that generates a workers compensation premium that is higher than it should be. You should never be surprised because of your audit.