Premium Audit Payroll Numbers Now More Important Than Ever
Why is the Workers Comp Premium Audit payroll accuracy more important in 2020? Yes, the COVID-19 pandemic may reach into your premiums more than you or your company may have anticipated.
Let us look at the basic components of your Experience Modification Factor – the Worksheets you should be receiving from your agent or rating bureau.
Basics of The Experience Modification Factor Formula
You do not have to figure it yourself – as the savings bond picture says – you may only need to understand how a heavy reduction in payroll can increase your Experience Mod.
Experience Mods have a lookback period of three years. The last policy year and associated claims will not show up anywhere in your Mod sheets – one of the basic rating rules.
Yes, I do realize the Rating Bureaus are changing some of their rules to aid companies with the COVID-19 pandemic. What I am covering will not change for the most part.
For example:
Policy renewal January 1, 2022 – remember the workers comp rating algorithm is a delayed system.
The 2021 policy and claims will not show up anywhere (could be the post-pandemic recovery period?).
Payroll – these are from a worksheet I am currently reviewing and forecasting.
| Policy Dates | Payroll | Claims – Total Incurred |
| 1/1/2018 – 1/1/2019 | $ 2,634,000 | 323,000 |
| 1/1/2019 – 1/1/2020 | $2,874,000 | 292,500 |
| 1/1/2020 – 1/1/2021 | $450,000 | 102,000 |
Unfortunately, the payroll had fallen – the class codes stayed the same- in other words, the company shrank but did not change during the pandemic.
I will spare you cranking the formulas through with a ton of numbers in this article. Think of higher payrolls being able to absorb the risk. The premium audit payroll numbers are reported directly to the rating bureau.
The $450,000 looks out of place. Why? Unless the employer had a very bad year the $102,000 in total incurred for the 2020 policy year looks high or were the payroll figures not reported properly?
The Mod in this situation will likely tick up. The $450,000 is not enough to cover the 102,000 in losses.
Wait – I thought lower Premium Audit Payroll Figures saved my company premium
Well, here is the “catch” on that one. Many of our client employers bid on large private or governmental contracts. If the Mod is above 1.0, you are out in the cold. I always advised the Risk Managers over these contracts to allow a little leeway. Allowing an employer with a 1.0 Mod or higher to bid has become rarer each year.
Temp-to-perm employers now see the 1.0 requirement more often.
Bottom Line – you want accurate numbers on your Mod sheets including the premium audit payroll info.
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