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Payroll Audit vs. Workers Comp Policy Renewal Timing Conundrum


Payroll Audit vs. Workers Comp Policy

Payroll audit vs Workers Comp policy renewal timing has been a controversial subject for many years.  We received this question last week from an employer with quite a conundrum that happens to almost all Workers Comp policyholders.

The question was:

Leave and Earnings Payroll Audit vs. Workers Comp Policy statement
Wikipedia commons – Kajmal

Why does the payroll audit occur after the policy renewal?  We disagree with our Workers Comp audit and want to switch carriers.  Our agent told us that we will receive a hefty penalty if we try to switch after policy renewal.  Is this true?   We are into our third month of the next year’s policy.   This seems to be unfair and almost binds us to another policy without knowing the true cost of the first policy.  

Your question is one we see the most often from our blog readers.  The timing of a WC policy does cause a problem for a large number of policyholders.  The short rate penalty is the reason your agent recommended not switching policies mid-term.   That was smart advice.

Woman Carrying Folder Payroll Audit vs. Workers Comp Policy Documents

The conundrum is that an audit cannot occur on the day of policy expiry.  That would be very burdensome on your company to provide records for payroll that just occurred the previous day.  The usual schedule for a premium or payroll auditor is to audit the business books 30 45 days after the policy has expired – in most cases.   That gives the employer time to organize their records.

Most insurance carriers will send out the premium audit bill within 15 – 21 days after the premium audit.  The schedule results in the receipt of the premium audit bill along with the audit results at 60 days into the policy.   Your company would then have to pay the audit bill within 10 days or dispute it.

I have never agreed with the 10 days to pay a large audit bill upon receipt of the bill.  Most states and polices allow up to 30 days.   Regardless, if you follow the 10 days to pay rule or not, you are at least three months into a policy with a carrier that you wish to not have for Workers Comp.

Woman Tensed Payroll Audit vs. Workers Comp Policy On Computer At Office Table

Some of the questions I would ask you at this point are:

  • Is the audit incorrect or do you just disagree with it?  Changes in business practices, new ownership, state law changes, etc. may have changed the “playing field”.
  • Did you dispute the policy and audit?  If so, what were the results?
  • Are you willing to pay a large penalty to switch Insurance companies?
  • Have you had a premium expert look at your audit that you do not agree with overall?
  • Did you read your policy before disputing?
  • Did you have a very large increase in payroll?

Disputing an audit can create your own minefield, so to speak.  You may actually cost your company more than the original audit.

The only solution I could ever come up with is to have a 90 day policy probationary period where no short rate penalty would apply if a company decided to switch carriers.  However, the carriers would respond with very sharp rate increases as they would be on the hook for a claim that you for which no premiums were paid.   In other words, I have not come up with a good idea, either. 

The best way I have seen to resolve the matter is to do a well-informed audit dispute with information and numbers to back your dispute assertions.  As distasteful as it may seem, you could switch carriers at renewal on your current policy in 2014.

If your company is in an assigned risk pool, switching carriers can be very close to impossible as there may be only one carrier covering your type of business in your state.  This has happened more frequently in the last few years as many carriers do not wish to be assigned carriers.

Please remember when it comes down to the payroll audit vs workers comp policy, read over your policy before disputing the audit.

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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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