California Physical Premium Audits
The rules for California physical premium audits have changed recently. The WCIRB (California’s Rating Bureau) recently released a reminder memo on the upcoming changes for 2014 Workers policies that have payroll developed under what is called a High Wage/Dual Wage Classification.

Physical audits will be required for all new policies regardless of the amount unless it is a renewal policy that has been physically audited in the past two years.
According to the WCIRB –
Currently, the USRP at Part 3, Standard Classification System Section VI, Administration of Classification System, Rule 4(a)(2) states: “Each policy producing a final premium of less than $10,000 shall be physically audited at sufficient intervals to ensure determination of proper payrolls.” The Insurance Commissioner’s Decision adds a new audit requirement for policies effective on or after January 1, 2014.
The new audit requirement provides that each policy producing a final premium of less than $10,000 and developing exposure in a high wage, dual wage construction classification must be physically audited unless the policy is a renewal and the insurer physically audited one of the two immediately preceding policy periods. This new audit requirement also applies to policies issued to Owner Controlled Insurance Programs (also known as “wrap up” policies).

This means that new small policies will be physically audited even if they are under $10,000. The recordkeeping requirements for physical audits are:
An audit of payroll, whether conducted at the policyholder’s location or at a remote site, that is based upon an auditor’s examination of the policyholder’s books of accounts and original payroll records (in either electronic or hard copy form) as necessary to determine and verify the exposure amounts by classification.”
The bottom line is that if you have a small construction company with premiums less than $10,000 it is wise to make sure you have all payroll figures correctly recorded. The old rule was that if your policy was under $10,000 your company may have not been required to go through physical audits. This will cause a large number of physical premium audits for policies that have less than $10,000 in premiums.
The list of high wage/dual wage classifications is available here.
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