Workers Compensation

What is the purpose of a premium audit?

• Workers Compensation (WC) policy premium is based on estimated payroll at the beginning of the policy term. At the end of the policy term, the policy is rated based on the actual payroll you paid your employees. This process ensures the proper premium is collected.
• Audit information is filed with the state, which plays a part in determining your experience modification (EMOD) and rates for the state.

Is the audit required?

• Yes, the policy provisions allow us to audit the policy annually. States provide guidelines on the frequency with which a policy must be audited.

I have placed coverage with another insurance carrier or have closed my business. Am I still required to complete the audit?

• Yes, you must finish out the policy term with a final audit to determine the proper premium. If you cancel the policy midterm, only the payroll applicable to that time will be required.

What is required for an audit?

• OWNERS, OFFICERS, PARTNERS, ETC – For each individual, gather the following information:
  • Name
  • State where the officer works
  • Corporate title
  • Total earnings for the audit period
• EMPLOYEE INFORMATION – For each individual, gather the following information:
  • Name
  • Job duties
  • Annual payroll amount for the audit period, including a breakout of overtime, vacation, bonus, sick time, etc. (computer-generated reports or payroll summary spreadsheets are appropriate)
  • Location where each employee works
  • Off-period payroll—payroll to correlate with 941s outside of the audit period
• VERIFICATION OF PAYMENT AND CERTIFICATES
  • Quarterly 941s to cover the audit period
  • 1099s with job descriptions and certificates of insurance for each leased employee or hired subcontractor during your policy period

Why do you need the documentation?

• The documentation ensures we review all records to perform a quality audit following state and the National Council on Compensation Insurance (NCCI) guidelines. All documentation requested is needed to apply all allowed payroll and exclusions. Providing records will help us conduct a comprehensive audit.
• After a review of initial documents, further follow-up or documentation may be required.

What happens if I do not supply the necessary information?

• Audits are required by the governing body in your state. Failure to comply with the audit, including but not limited to supplying all requested information and answering follow-up questions, will result in a non-compliant audit and may cause you to face penalties or other fees.
• In a non-compliant audit, the estimated payroll figure will be used to conduct the audit, and a penalty will be assessed.

What penalties or fees can I face?

• An additional charge may be applied to the audited policy. All documentation requested is needed to apply all allowed payroll and exclusions. If payroll is later returned, this charge will be removed.
• Complying with an audit could also prevent the premium on your current term from increasing.

How are employees classified?

• Employees are classified by their job duties, not their job titles. This is why it is important to provide an accurate list of job duties for each individual.

Can the payroll for employees with multiple duties be split between class codes?

• We can divide employee payroll among properly assigned classifications only when the rules allow. The employer must maintain proper payroll records. The records must show the actual payroll by classification for that individual employee and reflect the actual time spent working within each job classification. The records CANNOT contain an estimated or percentage allocation of payroll.
• When payroll records do not show the actual payroll applicable to each classification, we must assign the entire payroll of the individual to the highest-rated classification representing any part of the employee's work.

Clerical Office Employee

• Most states consider clerical employees whose duties include creating or maintaining financial or other employer records, handling correspondence, computer composition, technical drafting, and telephone duties, including sales by phone. A clerical office is a work area physically separated by floors, walls, partitions, counters, or other barriers and distinct from all other work areas and hazards found on the employer’s premises.
• An employee who has clerical duties but is also exposed to the hazards of the business would not be considered a clerical employee. A few examples would be a manager with a desk on the manufacturing floor, a clerical employee who works in a store to cover breaks or lunches, and an office employee who does shipping and receiving work.

Outside Sales Employee

• Most states consider outside sales as employees engaged in sales duties away from the employer’s premises. This classification is not available for employees who deliver merchandise.

How are miscellaneous employees (maintenance, shipping clerks, etc.) classified?

• Miscellaneous employees must be assigned to the classification describing your overall operations that contains the most payroll. This is called the governing classification. For WC purposes, we classify the business operations, not the individual employee duties.

Who is an executive officer?

• Executive officers of a corporation or unincorporated association are defined as the President, Vice President, Secretary, Treasurer, or any other officer appointed per the entity's charter, resolutions, meeting minutes, or bylaws. The inclusion or exclusion of these officers is state-specific and may require further signed documentation.

Rules regarding subcontractors may vary by state.

Why are 1099s, Certificates of Insurance, Financial Statements, or other records required?

• These records are used to verify any off-payroll exposures. In most states, workers compensation laws stipulate that a contractor is responsible for the payment of compensation benefits to employees of its uninsured subcontractors. You must furnish satisfactory evidence that the subcontractor has workers compensation insurance in force, covering the work performed for the insured during the policy period.

Why would questions about independent contractors be part of the workers compensation audit?

• The auditor may ask a series of questions about the relative nature of the work and the amount of direction and control to determine if the subcontractor is independent. If the subcontractor is not deemed independent based on the responses, the contractor will be included in the audit as an uninsured subcontractor. Many states have additional rules regarding independent contractors. The auditor will follow these rules when determining if a contractor will be included in the exposure.
• For workers compensation, uninsured subcontractors are treated as employees and will be included under the appropriate payroll classification if other proof of coverage is not provided.

If the state does not require a sole proprietor, partner, or member to carry workers compensation
coverage, why do they have to be covered under the Pharmacists Mutual policy?

• If the subcontractor has no employees, some states do not require workers compensation coverage. However, the auditor must determine if an employer-employee relationship exists between the insured and subcontractor. If an employer-employee relationship exists, Pharmacists Mutual may be liable for any claims the individual may file. Each state has different requirements to determine independent status. A general liability insurance certificate does not replace workers compensation coverage.

Why are Certificates of Insurance still required for a contracting company that requires all subcontractors to sign a document stating they are not employees?

• The document does not waive the right of the subcontractor to file a claim. Therefore, the exposures are included for premium calculation purposes without a valid Certificate of Insurance.

Why is a subcontractor included in my workers compensation audit when a general liability
Certificate of Insurance was provided?

• A general liability insurance certificate does not provide workers compensation coverage. General liability coverage is just one factor that can be considered when determining independence.

Can I dispute my audit?

• You have the right to dispute your audit. To do so, please submit in writing, exact details of what you are disputing, the correction that needs to be made, and evidence supporting your dispute. A dispute will be closed within ten days unless all the information is provided.
• An open dispute does not guarantee a change to the audit's outcome.

Why was I still billed during my dispute process?

• Any undisputed amount of your bill will still be due. This includes the current term of the Workers Compensation policy and any other policies you may have on your account. If these amounts are paid, you may avoid cancellation for non-payment.