Are Workers' Compensation Payrolls Up-To-Date?
All workers' compensation (WC) policies are required to be audited at policy expiration. The annual premium audit, sometimes known as the payroll audit, determines your business' actual WC insurance premium for the policy period. The audit specifically looks at the business operations, job duties, and responsibilities of all officers, employees, and temporary workers, along with gross wages during the policy term.
It is important to keep WC payrolls up-to-date to lessen the potential financial impact at the time of audit. If your business needs to adjust its payroll at any time during the policy period, or if you have questions about the audit process, please contact your regional account manager or call +1 866 814 7515.
Is my business required to participate in the audit process?
Yes, all policyholders who obtain a workers’ compensation (WC) policy are required to comply with the audit. Participation in the audit process is mandatory, as required in Part Five, sections E through G of your business’ WC insurance policy.
What are common misclassification mistakes?
The most common misclassification is with clerical employees. It may seem to make sense that if an employee spends most of his or her time in the office, only pitching in occasionally to drive a route or even move a truck in the yard, they should be classified as clerical.
However, having any exposure to the hazards of the business, even if occasional, does not qualify that employee for the clerical exception. They must instead be classified under the “governing” class, or the classification that best describes the operations of the business.
How can I be sure my employees are classified correctly?
To ensure you, your employees, and all other officers of the business are classified correctly, ask the following questions:
- Does the officer or employee only perform clerical duties? Clerical duties are defined as performing general office work in a separated office space away from the hazards of the operation.
- Does the officer or employee ever: Drive a vehicle or directly supervise or train employees in the terminal or vehicles? Perform routine maintenance on vehicles, including fueling, washing or oil changing? Work as a helper or dispatcher?
Depending on the answers to these questions, the officer or employee may be classified in the “governing” class.
What if I added employees since my renewal?
If payroll for the added employees isn’t included in your business’ projected annual payroll, it will likely be discovered during the audit that payroll was understated and additional premium would be due.
Payroll projections provided at policy renewal should include possible payroll fluctuation throughout the year, however changes to payroll can occur mid-term. It is important to call Marsh and provide any changes to payroll as soon as possible to help avoid additional premium due at the time of audit.
What information will be needed during the audit process?
Three types of records will be reviewed during the audit process; payroll, cash disbursements, and quarterly wage reports.
For payroll records, a payroll journal and summary showing payroll totals (separated into totals by each type of work performed), and overtime detailed separately by employee will be required. These payroll documents must coincide with the policy period. The cash disbursement journal for your business must include monthly totals by account, detailing subcontractors and casual labor.
The quarterly wage reports required include Quarterly 941 Federal Tax Returns and Quarterly State Unemployment Reports.
Which payroll information should be included?
According to the PAAS Basic Manual (2011 edition), workers’ compensation insurance generally includes the following types of pay in determining payroll for premium purposes:
- Employee wages and salaries (including pay for holidays, vacations or sickness).
- Executive officer wages (minimum/maximum rules apply).
- Commissions and bonuses.
- Expenses (considered as additional wages, but may be excluded if adequate records are kept).
- Extra pay for overtime (rules for this vary by state).
- Wages paid for time not worked, idle time, and strike periods.
- Employers’ payments on behalf of the employee to incentive plans and profit-sharing plans (subject to limitations by state).
- Payment or allowance for tools.
- Cash value of housing, lodging, and meals if furnished to employee as part of wage.
What happens if the audit reveals a discrepancy?
The audit will determine the final premium of a business’ expiring policy. If a business owes additional money, that amount will be due immediately. Should a business have overpaid its premium for the previous year, it will receive a refund once the audit is complete.
If the audit results in a substantial additional premium, the payroll estimate for your business’ in-force policy may be increased to avoid this situation in the next audit. It is the responsibility of the contracted service provider to ensure accurate payroll estimates are on file.