A Ticking Bomb or Just Another Day In The Park?
New York contractors as whole face a particularly difficult road when it comes to your Workers Compensation audit.
Why?
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Workers Compensation for contractors is expensive.
Therefore contractor workers compensation premium adjustments by their very nature can be
expensive. By way of example, a carpenter who picks up a couple of uninsured subs on his
policy at audit would be roughly the same premium if they added everybody in my office
complex onto my Workers Comp program.
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The very nature of the contracting business lends itself to sub contractors.
If those subs don't have documented proof of workers compensation insurance they will be
added to your policy just as if they were an employee. Once, this string has been
pulled the insurance company will go back to the policy period they just audited and add
the additional premium onto the premiums that you have already paid, and just so it is
the gift that keeps giving…They add the additional premium onto your current Workers Comp
Plan as well - it's like a sharp stick in the eye - actually 2 sharp sticks in the eye.
In fact, workers compensation policies have a 3-year "Look Back Window" - the insurance
company can look into your records dating back three years and conduct an audit.
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The insurance company's Workers Compensation Audit process is designed so all mistakes default to them.
The result - you, the employer is overcharged. The workers compensation policy is elastic.
It expands and shrinks to respond to meet to your increased or decreased payroll activity.
This elasticity allows for you to do business as you always have. In other words, if you add
employees, you do not need to call the company the instant you hire someone. The policy will
be audited and true up against what you estimated versus the end of policy period actual results.
The Nuts and Bolts of the Audit Process
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Your workers compensation policy is based on payroll.
The auditor will want to document the payroll for your business from a credible source.
You should have your payroll ledger, and copies of your federal tax returns.
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He will then ask which employees qualify for Standard Class Exceptions
(clerical, sales, drivers) He should then separate out the Standard Class
Exceptions from the total.
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He should but doesn't always record all of the corporate officers.
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The next item which should be taken out but often isn't is "Excluded Remuneration".
There are over a dozen areas of payroll which by workers compensation regulations are not
subject to workers comp premium adjustment. It is not the auditor's job to educate the
client - in fact many don't know all the rules - and certainly most insurance agents don't
know. This is a huge Cost Savings or more thrown into an insurance black hole for the
uninformed.
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Cost Savings Alert - In construction - separation of payroll is allowed.
This is essentially the "Two Hat Rule". If someone performs two distinct functions and are paid
separately for those jobs, the payroll can be separated for workers compensation purposes.
If not, the employee is lumped into the higher classification for all payroll - this could
quickly rise into thousands of dollars. Real life example - an insured was both a plumber
and an electrician and for years overpaid by thousands because his agent lumped him into
just being a plumber. Instead, by receiving two separate checks - one for the pluming work and
the other for his work as an electrician, separation of payroll can be acheived.
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As agents and especially you as an employer do not want the auditor to go on any kind of
Sherlock Holmes detective path,
and you really don't want him to delve into a creative writing exercise - this is bad and gets
worse.
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Instead, we as agents have prepared an audit package for our clients,
they hand it to the auditor, along with Certificates of Insurance from subs and other
contractors and have a prepared summary statement which gives the auditor everything they need
to go on their way.
The next premium suck for contractors is the fact that countrywide nearly 50% of all Experience
Modification Factors are wrong. Most agents don't catch this, because they don't know of the problem
and have no idea how to calculate the Experience Mod so just assume its correct. Half are wrong, do
you want to trust your hard earned money to an agent that doesn't have the tools to professionally
protect your money.
Workers Compensation Is Unlike Any Other Kind Of Insurance
Workers Compensation is unlike any other kind of insurance - you as an employer will end up paying back
more than the actual claim for almost all claims, you simply must know what to do and what not to.
Your agent should be able to direct you in this process - if he can't - you are probably not dealing
with a construction workers compensation expert. You should - there are a lot of sheckles on the
table for your business and the deck is stacked against you - you must take every possible avenue to
level the playing field or better yet - tilt it in your favor.
Call us at (888) 553-0021 or
contact us for answers to your Albany NY
Workers Compensation Insurance questions.
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