Once a year, audits are performed on our members’ workers’ compensation coverage. At this time, auditors analyze, review and compare the estimated sum of annual payroll projections (which are reported by the member at the time of application) to the actual sum of payroll totals for the year.
If the audit reveals that a member’s estimated payroll exceeds the actual payroll, the member will receive a credit. The converse of this is also true. If the auditor finds that payroll estimations are lower than actual totals for the year, the organization will receive an invoice for the difference.
Many variances cannot be foreseen at the time of application (such as an employee on medical leave); however, there are several factors that members can consider that may help alleviate these “audit surprises.” For example:
1. Proper classification of employees
Each workers’ compensation classification code has its own rate for the purpose of calculating premiums. Be sure to classify all employees in the correct payroll classifications. If you are not sure about where they should be classified, contact your underwriter here at Public Entity Partners.
However, you should never deliberately misclassify an employee. Think about the nature of the job that particular employee is doing, not necessarily the department in which he/she falls under. An example of this might be a clerk working in an auto repair shop. The clerk’s job is to provide proper clerical support for all repairs and services performed on company vehicles. He or she is not physically performing repairs/maintenance. It might appear logical to classify this employee under code 8380 for Automobile Repair Shop staff; however, the nature of this employee’s job falls under Clerical Office, code 8810, which has a much lower associated risk and will return a lower premium paid for this employee’s position.
2. Payroll separation — keep detailed payroll records
Many times, an employee can be classified under two or more classification codes, depending on the nature of the job. This allows for payroll separation among the different classifications. Proper documentation to support payroll separation is required. This includes detailed payroll records documenting the number of hours each employee spends in each separately classified activity. Failure to provide adequate payroll records will result in the total payroll being placed in the higher classification.
3. Plan for temporary/seasonal help
Staffing requirements, such as the need for hourly employees or the number of personnel needed, can increase/decrease during certain seasons for some departments. Parks and Recreation may find a need to increase staff and/or hours in the summer months, while winter months may require additional help for street cleaning. Remember to plan for these fluctuations in seasonal staff needs when filling out your application.
4. Certificates of insurance for contract workers
Should your organization employ subcontractors during the year, it is imperative to obtain a certificate of insurance to show coverage for workers’ compensation-related incidents. If your organization does not obtain and keep record of certificates of insurance from all subcontractors, the auditor will place these workers under your payroll totals. As a result, you will be charged the premium rate on each subcontractor by job classification.
5. Expansion needs
Adding employees due to increased labor demands or promoting an employee from part-time to full-time status are two examples of factors that can affect your workers' compensation premium. If possible, try to plan for any upcoming expansion needs.
6. At application time, review previous audits
It is always a good practice to review audit papers from prior years when filling out a renewal application. It's helpful to know how your employees have been categorized in previous years to help ensure they are categorized correctly in the upcoming audit. Many of the variances we see happen consecutively year after year. Look into the reasons why your organization was either charged a premium balance or given a premium credit, and try to make those adjustments to prevent “audit surprises” on the next application.
If you have questions about audit details, proper classification codes for employees or any other application concerns, our underwriting department is here to help. Contact us anytime at 800-624-9698.