Workers Comp Payroll Figures Affect More Than Just The Premium Audit

March 7, 2019 By JL Risk Management Consultants

Workers Comp Payroll Records Hang Around For Four Years+

A company’s workers comp payroll records are vital to the premium audit process. Assessing a company’s payroll records is one of the auditor’s main job functions.

workers comp payroll stack of dollar bills

So your premium auditor has combed through your company books . The auditor has generated a premium audit which the billing department will bill your company very soon – within 30 days.

Wow!, the concern about your workers comp payroll records is over and now you can move on as that is the last you company has to worry about those records. They will affect your company no longer in the Workers Compensation insurance process.

Hold on! Not so fast – those payroll figures are with your company for four years or more. Ouch! But why, you ask.

My last article centered on a part of your Experience Mod sheets Do you have your E-Mod sheets out? Do you know where they are so that you can see my upcoming point?

Look at your Experience Mod Worksheets starting with page two. Look down the left column – do you see that NCCI stores your workers comp payroll information on each of your policies.? I would rather that you look at your own X-Mod worksheets. If you do not have it available – which is not a good development an example provided by NCCI is below. Ignore all the arrows except for #6.

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Do you see the Payroll column? Hey, what is that doing here? Well, the workers comp payroll in every Classification Code(see the Code Column) establishes your company’s risk under workers compensation.

From my last article, the Expected Losses – with payroll as one of the equation variables – are compared to your actual losses.

If you look at your complete Mod sheet, the policies go back four years or more. I am just showing you one year of one policy as an example.

What do we know or do about the payroll figures? If they do not look right, compare them to an annual payroll statement for that policy year. Remember that payroll (remuneration) does not cover every item in your payroll summaries.

One of the secrets of Experience Rating is that higher payrolls usually will increase your indirect discount – the interesting Wt variable. Or better yet, accurate payrolls make the Wt variable accurate.

If you decide to shop your workers comp policy around in the market. What is one of the first things that a good agent, underwriter or consultant wants to see? I ask for the Experience Mod Sheets and Loss Runs as the first documents.

Analytics and Payrolls

Now with so much credence given to analytics – your payroll figures on the Mod sheets can easily go back 20 years. NCCI, WCIRB, and the independent rating bureaus store your Mod sheets for many years. Analysts/underwriters/carriers, etc. will look back beyond four years. One of the main areas examined is the workers comp payrolls.

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Workers Comp Audit Dispute Question From Twitter Tweeter

August 1, 2013 By JL Risk Management Consultants

Audit Dispute Question From A Twitter Follower

Our Workers Comp Twitter handle received an audit dispute question from a Twitter Tweeter.

Can an insurance carrier perform a mid-term audit and then come back in for another audit after the policy expires? That seems to take up a large amount of our time to have to assemble all of the data twice per year. Will the carrier (name removed) be able to do this every year? What are the rules on Workers Comp audits?

Wikimedia – David Ferreira

The email had a few expletives and the carrier’s name that I removed to avoid receiving another threat of a lawsuit due to this blog. Unless our customer base has changed, we seem to be receiving questions concerning multiple premium audits per year more than in the past.

It is noted that employment agencies seem to have more audits per year than most other lines of business. Those audits can be very complicated as they may cover multiple states and long lists of classification codes.

The best place to start on payroll or premium audit rules is the policy for that year itself. In every policy, there is going to be a small section on premium audits. I have often advised every company, risk manager, human resources manager, business owner that I have met with policy questions to review their policies in depth. There are many interesting subtleties in every policy.

The premium audit section will usually say something similar to:

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Carrier has right to audit multiple times per year during policy term and up to three years after policy expiration.
Employer must turn over any/all records that have been requested – not just payroll records
Audit must be convenient to employer and not interrupt business practices
Refusing audit appointment will result in a heavy penalty – not in all policies
Employer will receive audit notice letter well in advance of audit date

The bottom line is the WC policy is a contract between the employer and insurance carrier including any policy amendments during the year. Do I agree with these? I would say not necessarily, but it is the insurance contract that conforms to the rules of every state of WC coverage that dictates the rules.

The most upset employers we hear from are the ones where the carrier decided to audit them more than two times per year. I would have to agree with these employers. It is understandable possibly for the first year. After that time, what is to be accomplished by three audits per policy year?

The rule from one of the state rating bureaus (CA’s WCIRB) on premium audits is:

Piggy Bank Audit Dispute Question With Dollars

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(1) Each policy producing a final premium of $10,000 or more shall be subject to a physical audit at least once a year. On policies subject to monthly, quarterly, or semiannual interim audits, …

The last audit of the policy shall be a physical audit of the complete policy period.

I used the WCIRB’s rule as they seem to be more concise. The keyword is the policy. One of the areas of the most concern is changing premium by a non-audit based endorsement. Any type of interim changes to your WC policies should be met with a certain level of skepticism and close review.

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Make Sure Your Policy Payroll Matches Your Budget Forecast

December 4, 2012 By JL Risk Management Consultants

Does Your Policy Payroll Match Your Budget Forecast?

Your policy payroll should match up with your budget forecast. Payroll and certain benefits – known as remuneration among the Workers Comp premium auditors – should match your budget for your next policy year. Just copying the payroll figures from your last years’ audit may result in giving your Workers Comp carrier having free use of your $$.

Picture Of Money Policy Payroll And Calculator

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This is a very prevalent situation as employers are shrinking their payrolls and laying off workers in a very down economy. If your company has shrunk or your payrolls have declined, do not just allow the carrier to copy last years’ audit as a baseline. For instance if your company has reduced its payroll by 18%, why would you have to pay the extra 18%?

This is a hotly debated item as often your agent may tell your company that it will be all refunded or credited back to your company at audit. Why would you wait 13 – 14 months to recover what you knew was going to occur at policy inception? The 13 – 14 month figure includes 12 months for the policy to expire and then 60 days for the audit and the results of the premium audit to concluded and reported by the carrier.

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This makes your projected budgets even more important when talking with your agent about your upfront policy premiums. If you do not have an exact budget prepared approximately 45 days before your fiscal end of year, your company will not have very much leverage or substantiating documentation.

You may wish to even throw in a graph of how your company is projecting your next fiscal years’ payroll numbers. As they say, a picture paints a thousand words – so do graphs.

Your agent and the carrier’s underwriter will require more than a verbal estimation. This is when Excel(R) can be very helpful along with your accounting package such as QuickBooks(R).

The same applies if your company decides to use temporary workers or subcontractors instead of regular employees. Using subcontractors invokes a new set of rules on whether or not they are actually employees.

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Is Remuneration Definition Same As Payroll?

April 26, 2010 By JL Risk Management Consultants

Term Of The Day – Remuneration

This is an archaic word at best. It is still used in Workers Comp vernacular as opposed to payroll, etc. Please note that this is a generic list and may not apply to all jurisdictions. Remuneration is not another Workers Comp term for payroll. After examining this list, one can see why the premium auditors want complete records.

Picture Of Hand Carrying Plant Remuneration Grow With Money

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Remuneration consists of gross wages, or other compensation, before withholding taxes or other deductions including:

• Retroactive wages or salaries
• Total cash received by employees for commissions and draws against commissions
• Bonuses including stock bonus plans
• Extra pay for overtime work (with some exceptions)
• Pay for holidays, vacations or periods of sickness
• Payment by an employer of amounts otherwise required by law to be paid by employees to statutory insurance or pension plans, such as the Federal Social Security Act
• Payment to employees on any basis other than time worked, such as piecework, profit sharing or incentive plans
• Payment or allowance for hand tools or power tools used by hand provided by employers either directly or through a third party and used in their work or operations for the insured

Standing Woman With Remuneration Big Dollar Sign

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• The rental value of an apartment or a house provided for an employee based on comparable accommodations
• The value of lodging, other than an apartment or house, received by employees as part of their pay, to the extent shown in the insured’s records
• The value of meals received by employees as part of their pay to the extent shown in the insured’s records
• The value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay
• Payments for salary reduction, employee savings plans, retirement or cafeteria plans that are made through employee authorized salary deductions from the employee’s gross pay
• Wages paid to employees as salary in conjunction with the Davis-Bacon Act or other prevailing wage laws
• Annuity plans
• Expense reimbursements to employees to the extent that an employer’s records do not substantiate that the expense was incurred as a valid business expense
• Payment for filming of commercials, excluding subsequent residuals that are earned by the commercial’s participant(s) each time the commercial appears in print or is broadcast.

Workers Comp Budget Killed By Incorrect Payroll Forecasts

January 27, 2009 By JL Risk Management Consultants

Payroll Forecasts vs.Workers Comp Budget

Your payroll forecasts can affect your Workers Comp budget . One of the main components of your Experience Modification Factor (E-Mod/X-Mod) is your company’s payroll.

Picture of Workers Comp Budget Computerize Word On Hand

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One of the disturbing trends that we are seeing is that the payrolls from the last year are used to forecast the payrolls for the next year. In this recessive economy, quite a few companies are actually going to have LOWER payrolls than the year before or two years previously.

I recommend looking at the Workers Comp payroll figures on your policy very closely. If the payrolls for the upcoming year seem to be high, immediately point this out to your agent and insurance carrier. Overstating payrolls is the same as giving the insurance carrier an interest-free loan on the excess payrolls.

The premium auditor will catch the overstatement of payroll at the end of the year. By then, your company could have earned interest on the overpaid premiums due to the payrolls or invested that part of your budget into another area to increase profitability.

If you need any assistance with how to prepare a forecasted budget, we will be happy to assist you with the payroll forecasts.

Interchange Of Labor Rule – Employee’s Payroll Divided

October 15, 2008 By JL Risk Management Consultants

Interchange Of Labor Rule For Workers Comp Payroll

With the Interchange of Labor Rule – Can Employee’s Job Duties Be Divided on Workers Comp Payroll Reports?

Vector Icons Interchange of labor rule Employee's Payroll job Duties Classification

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A Question From One Of Our Readers On The Last Post –

Are we able to split a job into different duties and keep track of each job duty on the payroll? Would that save us Workers Comp premiums?

Yes, you may split up an employee’s job duties among different classification codes under the Interchange of Labor Rule. This may save your company $ in Workers Comp premiums. However, the rules are very specific and somewhat complicated. There are a few caveats that come with splitting up an employee’s payroll into different workers comp classification codes. They are:

Every minute the employee worked under a certain classification code would have to be tracked. An estimate or % is not acceptable.
You cannot mix the payroll among the Standard Exception codes and another class code. The main Standard Exception is code 8810 – Clerical.
The employee cannot be considered a miscellaneous employee. The term miscellaneous is not a true miscellaneous employee.
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The payroll for holiday, sick, vacation, and overtime will usually be assigned to the higher class code.
The records for this must be very accurate and well-documented.
Certain states may not allow the split of payroll.
Certain classification codes may not allow the payroll to be split.

Unfortunately, we have not seen the division of payroll as an advantage to an employer. The main reason is that the employee has part of their job duties as a Standard Exception, which results in the employee being rated in a higher classification code. This applies even if the employee only works a few minutes in a different job.

It is advisable to make sure that the division of an employee’s payroll will actually reduce the Workers Comp premium before policy renewal or the payroll audit.