A Ticking Bomb Or Just Another Day In The Park

1. Workers Compensation for contractors is expensive. Therefore contractor workers compensation premium adjustments by their very nature can be expensive. By way of example, a carpenter who picks up a couple of uninsured subs on his policy at audit would be roughly the same premium if they added everybody in my office complex onto my Workers Comp program.
   
   
2. The very nature of the contracting business lends itself to sub contractors. If those subs don't have documented proof of workers compensation insurance they will be added to your policy just as if they were an employee. Once, this string has been pulled the insurance company will go back to the policy period they just audited and add the additional premium onto the premiums that you have already paid, and just so it is the gift that keeps giving…They add the additional premium onto your current Workers Comp Plan as well - it's like a sharp stick in the eye - actually 2 sharp sticks in the eye. In fact, workers compensation policies have a 3-year "Look Back Window" - the insurance company can look into your records dating back three years and conduct an audit.
   
   
3. The insurance company's Workers Compensation Audit process is designed so all mistakes default to them. The result - you, the employer is overcharged. The workers compensation policy is elastic. It expands and shrinks to respond to meet to your increased or decreased payroll activity. This elasticity allows for you to do business as you always have. In other words, if you add employees, you do not need to call the company the instant you hire someone. The policy will be audited and true up against what you estimated versus the end of policy period actual results.
   
   

The Nuts and Bolts of the Audit Process

1. Your workers compensation policy is based on payroll. The auditor will want to document the payroll for your business from a credible source. You should have your payroll ledger, and copies of your federal tax returns.
   
   
2. He will then ask which employees qualify for Standard Class Exceptions (clerical, sales, drivers) He should then separate out the Standard Class Exceptions from the total.
   
   
3. He should but doesn't always record all of the corporate officers.
   
   
4. The next item which should be taken out but often isn't is "Excluded Remuneration". There are over a dozen areas of payroll which by workers compensation regulations are not subject to workers comp premium adjustment. It is not the auditor's job to educate the client - in fact many don't know all the rules - and certainly most insurance agents don't know. This is a huge Cost Savings or more thrown into an insurance black hole for the uninformed.
   
   
5. Cost Savings Alert - In construction - separation of payroll is allowed. This is essentially the "Two Hat Rule". If someone performs two distinct functions and are paid separately for those jobs, the payroll can be separated for workers compensation purposes. If not, the employee is lumped into the higher classification for all payroll - this could quickly rise into thousands of dollars. Real life example - an insured was both a plumber and an electrician and for years overpaid by thousands because his agent lumped him into just being a plumber. Instead, by receiving two separate checks - one for the pluming work and the other for his work as an electrician, separation of payroll can be acheived.
   
   
6. As agents and especially you as an employer do not want the auditor to go on any kind of Sherlock Holmes detective path, and you really don't want him to delve into a creative writing exercise - this is bad and gets worse.
   
   
7. Instead, we as agents have prepared an audit package for our clients, they hand it to the auditor, along with Certificates of Insurance from subs and other contractors and have a prepared summary statement which gives the auditor everything they need to go on their way.
   

Workers Compensation Is Unlike Any Other Kind Of Insurance