In our last blog, we explored the seven ways you could better prepare for your Workers’ Comp Audit (WCA). And while there is plenty you can do to be properly prepared for your WCA, there’s really nothing you can do to prepare yourself for the whopping bill that can result from your WCA.
So what to do when your WCA has come and gone and you’re left holding a bill topping $100 grand? Or is there even anything you can do about the final results of your WCA and the increase in your premium that may result from it?
Fortunately for you, the answer is yes. And no need to feel alone in this, since believe us you’re not alone in this matter. One out of every ten businesses ends up paying high amounts in premiums for guaranteed cost plans or loss sensitive plans. But even more staggering though, is that nine of these ten businesses are overpaying in some way or another.
So let me be the first to say this: There’s no reason for you to PAY THIS PRICE!
So to avoid shelling out more money than you have to, it is essential to review your WCA carefully and thoroughly. There’s no reason for you to pay the price for an auditor’s mistake. Insurance providers don’t err to be malicious or to milk you for money; the errors are usually a result of the constantly changing workers’ comp laws. It’s hard for your provider to keep up with the changing laws. In addition, there are differing laws that govern workers’ comp in every state. Your provider may be most familiar with the laws in the state they are based out of, however, you are only responsible to pay for what you are liable for according to the laws of the state where your own business is located.
Before you start reviewing your audit billing statement and work papers, make sure you have the original policy handy for comparison.
- Misclassifying Employee Positions
Big business loves to classify everything, and we mean everything, so your insurance policy is no different. Every job is classified and these classifications are used to identify the activities of the insured, placing them into specific groups according to industrial or occupational categories. While it sounds simple, there are actually numerous rules in place that govern how these classifications are made.
In order to avoid a costly increase in your premium, check to make sure the codes on your audit do not include any more costly classifications that were not on the original policy.
The ability of the insurance company to add more expensive classifications at the time of the audit is limited in many states, with the rules for construction-related classifications being somewhat more lenient.
- Did the auditor alter your workers’ comp class codes?
- Did the insurance company change the class codes?
- Was your payroll moved into the highest rated class?
- Was the owner of the company classified correctly?
- Were your key employees classified correctly?
- Higher Experience Modification Factor (EMR) (we’ll explore what EMRs are exactly in our next blog)
Like the job classifications, this is all about comparing, comparing and more comparing. Compare the EMR on your audit with your original policy. Is it higher on the audit? If it is, you are looking at a probable mistake and a possible basis for a dispute. Most states do not allow insurers to increase the modifier late in the term policy.
And I don’t have to say it again…because you’ve guessed it, this too is about comparing your original policy to the WCA. Your schedule credit or debit should remain unchanged from the original policy. And again, here too, if you find a discrepancy between the audit and the original policy, you may have the basis for a dispute.
- Subcontractor Charge
Were you charged for subcontractors on your audit? Insurers are paying increased attention to this category. Often, these charges are legitimate since in many states, an uninsured contractor has identical rights as an employee. However, an auditor may mistakenly classify an insured subcontractor as uninsured if you fail to provide a certificate of insurance or you neglect to mention this point to your auditor. If you catch this mistake now, though, you can fix it through a dispute.
In general, it’s best to use insured subs when possible and to secure valid certificates of insurance for each sub.
- Changed Allocation of Payroll
Determine how much payroll was assigned to each classification. Is the payroll allocated among different classes than was originally planned?
Sometimes, the auditor may prohibit the separation of payroll. It is your job to find out if by law, you are allowed to separate payroll in your industry. Make sure to keep yourself updated on the latest law, as it changes frequently. If you are indeed allowed to separate payroll, be sure to do so properly in order to avoid disappointment with your audit.
Is overtime pay significant in your operations? If so, be sure that the audit work papers indicate that an adjustment has been made to remove the premium portion of overtime pay.
- Premium Credits or Modifiers are Removed during the Audit
When your policy premium is calculated, your policy may qualify for specific premium credits which can be applied to your premium. Often, though, these credits, or modifiers, are erroneously removed during the workers’ comp audit. Be sure to check that any credits or modifiers you have are calculated in your premium statement
- Change in Workers’ Compensation Rates
Have the workers’ comp rates been altered from the original agreement? If they have been, you likely have basis for a dispute – insurers are only allowed to change these rates in very specific circumstances. Even if the criteria for this change are met, the insurer must provide you with notice of these possible changes by attaching an endorsement to your policy which informs you of this potential rate change.
Look for rate changes that are apparent on your audit, but not on your policy, a lack of endorsement to change your rates, split rates on your original policy, and rate changes applied during your policy period.
- Unmatched Payroll
Are your actual payroll numbers different than the payroll numbers reached by the auditor? If there is a discrepancy, your audit was not done properly.
Review the payroll information you shared with the auditor for the following mistakes:
- Payroll figures for the wrong period of time were submitted
- Incorrect payroll numbers were shared with the auditor
- Auditor incorrectly applied the payroll numbers
- Payroll caps are incorrectly applied
- Other remuneration, such as overtime pay was erroneously applied as payroll
As you can see by this lengthy article, there’s a lot of room for error on an audit! So don’t take your WCA at word value. Review, review, review. Compare, compare, compare and make sure you’re not paying out extra money for a mistake on your paperwork.
Once you have reviewed your papers and determined that you have basis for a dispute, your next step is to communicate these errors in writing to your insurance provider’s audit department. If this step does not yield satisfactory results, you may want to contact your state’s department of insurance for assistance.
With over 10 years of experience in managing workers’ comp claims Tehila understands well the struggles involved. Joining Modwatch gave her the opportunity to use her passion of reducing work related injuries, getting employees back to work, and helping reduce insurance premiums to help others.