When you purchase your workers compensation policy your premium was based on the nature of your business and estimated payroll. At the end of the policy. Your insurance carrier will conduct an audit to compare the estimates against the actual figures and operations. Based upon this comparison an adjustment is made. If the actual payroll is less than what you have estimated a refund will be made. If it’s more you’ll be billed for the difference. These adjustments are subject to any minimum premiums that a carrier may require.
Workers compensation premiums are based upon payroll in most states. This includes: payment of wages, bonuses, commissions, over time*, sick pay, vacation pay*, tool allowances, contributions to individual retirement accounts, employee contributions to employee benefit plans or payments on basis of piecework, incentive plans, profit sharing or the value of housing furnished to employees*, store certificates, merchandise and other dollar substitutes. Remuneration does not include: employer contributions to a group insurance or pension plan other than statutory plans of insurance, special awards for individual inventions or discoveries, overtime*
Subcontractors – most state laws hold the contractor responsible for injuries to employees of subcontractors , if the subcontractor does not have their own workers compensation insurance. In addition, at the time of audit certificates of insurance will be requested from the auditor for subcontractors with employees, in order to avoid payment of premium for the subcontractor’s employees. It is very important that you collect certificates from all of your subcontractors and/or vendors to prevent being charged additional premiums.
Independent contractors, without employees, whose duties closely resemble those of an employee, will be considered your employee with the appropriate premium charged. An auditor will examine the actual relationship between you and the independent contractor. Items such as, but not limited to: whether the work performed is an integral part of your operations, whether you have the right to control the details of the work, the method of payment, who supplied the materials used, does the person regularly work for others, whose regulatory authority did the person operate under, whether the person is involved in a separate and distinct business offering the same services to the public. It is important to understand that the IRS rules for independent contractors are not the same as the Department of Labor and or workers compensation rules. It is recommended that you obtain a certificates of insurance from all independent contractors to help establish a true independent contractor status and avoid being charged for their premium.
Records as a part of the policy conditions carriers are allowed to examine your financial books and records to determine the actual exposures and operations. The records needed will vary. Generally the premium auditor will be able to obtain the necessary audit data from two or more the following records: journals, ledgers, state and federal tax reports, individual earning cards, checkbooks and contracts.
Overtime in most states, the amount paid in excess of straight time pay can be deducted if it can be verified in your records. It is important to separate out straight time pay from overtime and double overtime so the auditor can easily convert it back to straight time. Otherwise you will be charged the excess pay in premium. You must maintain your records to show pay separately by employee and in summary by classification of work. i.e. clerical employee vs store employee). In most states the division of the employees payroll to more than one class is not allowed, with the exception of construction operations the payroll of an employee may be split between each type of work performed if proper records are. Your records must show the number of hours and amount of payroll for each type of work (i.e. electrical, plumbing, painting, etc.). If you do not keep such a breakdown the full salary must be charged to the highest rated classification to which the employee is exposed.
In most states executive officers are considered employees of their Corporation and are included in the computation of premium. There payroll is assigned without division to the actual operation which they are engaged. If their duties are the same as those of a worker, four men or superintendent, their payroll is assigned to the classification that develops the highest payroll. Officers that hold stock ma may choose to be excluded, but this must be clarified in advance of starting the workers compensation policy term. Minimums and maximum payrolls do apply to executive officers.
It is important to keep accurate and detailed payroll records to avoid overpaying on your workers compensation insurance.
Written by Tim Dean
