Cash Flow Tips for Your Work Comp Policy
With a decrease in workload, particularly for tree services focused on residential work, managing your cash flow can be a make or break proposition during tough times. Every dollar in and every dollar out should be analyzed. One way to improve cash flow is by really focusing on your worker’s compensation policy.
As most of you know, worker’s compensation companies ask for an estimate of how much payroll you think your company will have throughout the policy period and multiply that estimate by the rate. At the end of the policy year the insurance company will have you complete an audit to verify what the figure actually was. It is difficult to estimate that number exactly, which is why most tree services will either end up owing more premium or being refunded some.
“Pay As You Go” – A “Pay As You Go” plan allows you to pay your worker’s compensation premium based off of your actual payroll for the month prior. Because of the economic impact of COVID-19, many tree services may see lower payroll figures than originally anticipated and you may be paying higher monthly payments than what your actual exposure is for the month.
Lower Payroll – If your worker’s compensation company doesn’t offer “Pay As You Go” and you are experiencing lower payroll, have your insurance agent adjust your overall estimate to lower your monthly payments. Just be careful as payroll may spike due to a large storm season and you could end up owing a large chunk at the final audit.
Verify Most Recent Audit – If you do experience a large audit, make sure to verify everything is correct with your agent. Just last week, I experienced an audit where the worker’s compensation company accidentally counted two employees as officers, leading to a significant increase in payroll. They weren’t trying to overcharge at all, but there was a miscommunication on the way the two employee’s payroll was reported. The mistake led to a $7,000 increase in premium. If everything is correct and you experienced much more payroll than anticipated, ask your insurance company if they will let you break out the amount due into multiple payments. Most companies will work with you, especially in times like these.
Policy Deposit Premium – Another thing to watch out for on your worker’s compensation policy, is the deposit required by the insurance company. Some companies will require a 5-15% deposit that doesn’t go towards your final premium. They do this to ensure there aren’t any issues with the audit at the end of the year as insureds will sometimes not return necessary information. Make sure you ask how big of a deposit your worker’s compensation carrier requires, and check to see if it is required every year or if it is just a one-time deposit required when you first start your policy.
Furloughed Employees and New Class Code – I’ve also heard of several tree services having to temporarily lay off or furlough employees due to their state’s work restrictions or from a slowdown in jobs. The National Council of Compensation Insurance (NCCI) has recognized that the downtime in which employees are not working should not be counted towards your premium based on your tree care operations class code(s). To solve this, NCCI has created a new class code 0012-Paid Furloughed Workers During a Governmental Emergency Order Impacting Employment.
According to the Wisconsin Compensation Rating Bureau, “If an employer continues to pay furloughed employees their normal wages and keeps separate, accurate and verifiable records, the payroll will not be included for the basis of premium.” Be careful with this as an employee cannot be furloughed for part of the day. If any duties are performed in a day, no division of payroll is acceptable. Also, this class code is only applicable while an emergency order is in effect (I.E. until May 26th, 2020 in Wisconsin). Check with your state’s stay at home order and your insurance agent on how to utilize class codes to help with your worker’s compensation cash flow.
Feel free to reach out to Eric or myself if you have any questions moving forward. As always, stay safe and stay healthy!
Written by: Malcolm Jeffris, CTSP