Hello everyone -
For many of our commercial clients, this time of year means audits are being completed on their workers compensation policies.
Workers compensation premiums are typically calculated at the beginning of the policy period based off an estimate of what the total payroll will be for the upcoming term. An audit is then completed about 60 to 90 days after the end of the policy period to determine what the actual payrolls really were. The net difference is then either credited or debited back to the insured.
While getting money back can always be a pleasant surprise, receiving a hefty bill for additional premium due can be frustrating to say the least, particularly if you run a cash flow sensitive business.
What I have found over the years is that in most cases these situations can be avoided or at least minimized. The following are few helpful tips that I wanted to pass along that will help mitigate those nasty surprises at audit time:
* If your business experiences a sizable, unforeseen change in payroll during the policy year, be sure to notify your agent as soon as possible. Particularly if this occurs early in the period. You can take advantage of the remaining months to prorate the increased premiums.
* If there are owners or officers that wish to be excluded from workers comp coverage, they will be required to sign an exclusion form from the insurance carrier before the policy goes into effect. If they do not, part of their salary will be pulled into the payroll numbers increasing the premium.
* If your business hires subcontractors, be sure to request from those contractors proof of workers comp insurance for their employees. In addition, make sure it overlaps your entire policy year. For example, your policy term is from 1-1-13 to 1-1-14 but the sub contractors work comp policy period is 8-1-12 to 8-1-13. You will need 2 certificates from that contractor that show coverage for the entire year. Otherwise, you risk picking up part of the sub contractors payroll in your audit.
Workers comp insurance laws vary from state to state. Be sure to consult with your agent or adviser for further assistance.