Workers' compensation is an essential part of any business.
What makes it challenging is that the payment structure requires an up-front payment based on projections, with any remaining balance due at the audit.
Getting blindsided by a big bill is never fun. To make sure you're not taken by surprise at your workers’ comp audit and renewal, it's important to set things up right from the beginning of the policy.
In this blog, we'll give you the six most important things you can do so that your audit and renewal process runs smoothly without any unexpected bills.
Let’s dive in!
There are between 500 and 600 different work classifications, and choosing the one that fits you the best can result in the lowest rate. Sometimes, workers whose only responsibilities are clerical are incorrectly added to the far more expensive job classifications.
An auto body company's bookkeeper/administrative assistant, for instance, shouldn't be categorized as a body shop employee. Employees who do clerical work have a different code (8810). Lumping them together with manual labor will increase your premium.
Another example is if you misclassify an employee as an independent contractor, then you may not be able to obtain workers' compensation coverage for them. If they are injured on the job, and you don't have workers' compensation coverage, then they will be eligible for benefits from the state's Uninsured Employer Fund (UEF). This can be costly for employers.
In addition to workers' compensation coverage, there may be other benefits that depend on whether someone is classified properly as an employee or not.
For example, some employers may offer 401(k)s or other retirement plans for employees only. If someone is improperly classified as an independent contractor instead of an employee, then they wouldn't be eligible for these benefits.
Every policy is audited at the end of the year, if not more often. They will see the true numbers and ask you to pay the difference.
It's important to understand what payroll is included in a workers’ compensation audit and not underestimate it. Things you can count are as follows:
Under-projecting your payroll for workers' compensation means that even though you have paid for insurance, you haven't paid enough to cover your employees' increased payroll.
Say your original premium was based on $250,000 of payroll. Then you paid $300,000 in payroll. You will need to pay insurance on the extra $50,000 in payroll that wasn’t already covered.
Even though the year has passed, your insurance company was liable for any injuries that happened and you need to pay them before they will insure you again for next year.
Subcontractors are skilled workers that you hire as a 1099, not as a regular W2 employee.
They can be working for a short period of time or for a few hours a week on a steady basis. They can either be performing work that your business doesn’t usually do or just acting as an extra pair of hands.
Since you hired them, if they get hurt on a job site and don’t have their own workers’ comp insurance, they can sue your business to pay for their medical bills and other expenses. Your insurance company does not want to pay for medical bills and lost wages to people who weren’t on the policy to begin with and that you didn’t pay for.
As such, they require that all subcontractors that you hire have their own workers comp policy.
This means that you should ask every subcontractor that you hire to provide certificates of insurance with accurate and enforced workers' comp policies showing that they carry their own workers' comp.
In the event that they don't provide that to you, then the auditor may require you to include the money you’ve paid them in your policy because essentially you are going to be liable if an injury were to occur to any of those subcontractors.
So it would be wise, and this is a great way to avoid a large bill at audit, is to collect those certificates of insurance before work begins and keep them handy and in a place where you can share them with the auditor at audit.
Not only should you have a clear process documented, but you should also make sure your employees know about it. This will make the entire experience easier for all involved.
Getting the insurance company involved from the beginning can help keep claim costs down and will help keep future premium amounts down as well.
Your process should be outlined in your employee handbook and discussed annually, so everyone understands.
For instance, is there a chain of communication that needs to be followed or specific paperwork that should be completed in the event of any injury? Being prepared will ensure that everyone involved is covered if questions or concerns arise at the workers’ comp audit.
Make sure your employees know where to keep any documentation generated, as well as follow up with any further steps needed. Assess your policy as needed to ascertain if it still works well for your team.
Generally speaking, an incident report should be completed every time an incident occurs. This step ensures the organization's health and safety procedures are successful.
Every employee should be trained on how to fill out and submit an incident report form, according to management, and every event at work needs to be reported right away.
Every state also has laws about how quickly injuries need to be reported to the insurance company. Reporting injuries after the time frame can result in a fine.
Besides allowing you to maintain proper documentation, there are other benefits to reporting:
Audits are performed at expiration or at cancellation of a workers’ comp policy. Keep your payroll records and files neat, so you don't have issues later!
Having a clear process for reporting claims, properly classifying employees, and understanding what payroll is included in the audit can save you from costly surprises and ensure that your workers are properly covered.
You can also cut costs by ensuring that you are getting the best rate on your workers’ comp policy. If you want to find out how much your workers' compensation policy would cost, start your instant online quote and get your answer in less than 10 minutes.
If you would like to know more about workers' compensation or the services Kickstand Insurance offers, call us at 866-338-8823. We'd love to hear from you.