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Avoid Work Comp Audit Aggravation

Avoid Work Comp Audit Aggravation

If I could do away with one thing with Work Comp insurance, it would be to eliminate the audit process! The mere word “audit” makes my skin crawl. Unfortunately, I cannot wave a magic wand to rid ourselves of the Work Comp audit, so here is some helpful information to make your audit go as smoothly as possible.

First of all, the purpose of the audit is for the Work Comp insurance company to receive the appropriate premium for the exposure that your business has. If you have more employees, you have more exposure to a workplace injury. Because your employee situation can change drastically throughout the year, looking back at the prior year is the only way for the insurance company to gain the proper premium. They do this by utilizing an audit. So if your audit shows that you had more payroll than estimated, you’ll owe more premium, if you had less payroll, you’ll get the respective premium back.

Understanding the timeline of Work Comp policy is critical. Here are the basic milestones for your policy:

Projected annual payroll is given to the insurance company to generate estimated premium.
You pay premium throughout policy year based on payroll estimate.
Your policy renews using prior year’s estimated payroll amount.
A Work Comp audit is required to adjust prior term premium.

There are four key points that I want you to be aware of regarding audits:

Non-Compliance – Audits are required by the insurance company and failure to complete them will result in cancellation of your current policy and any future policies until the audit is completed.

Class Codes – No matter how your policy was set up at the beginning of the policy, the audit will ultimately determine the classifications of all employees. To get the proper class codes, make sure:
– To have specific job descriptions for everyone outline their exact job duties.
– To keep separate payroll records for the different jobs performed by your employees.

Sub-Contractors – Sub-Contractors will be considered employees, unless you have a certificate of Work Comp insurance from them showing active coverage during the dates they worked for you.

Payroll Adjustments – You don’t have to wait for an audit to adjust your payroll estimate. This can be done at any time during the policy year at your request or it may happen automatically when the insurance company adjusts the payroll on your current policy to match the prior year’s audited payroll.

Because Work Comp audits are a source of frustration for every tree care company, here are my tips for being prepared for your audit.

Designate a friendly, knowledgeable individual to meet with the auditor. This person should know what each employee does for the organization. If an employee’s job duties are unclear to the auditor, they will assign the highest code to that individual.

Prepare payroll records by classification for the policy period. Make sure to have overtime pay in a separate category so the auditor can discount it back to straight time.

Show your officer payroll separately, as the officers payroll is capped and some companies have elected to exclude officers from coverage altogether.

Prepare a summary statement of the payrolls by classification.

If you use subcontractors or independent contractors, have Certificates of Insurance copied for the auditor verifying the subcontractor/independent contractor carries their own Work Comp insurance.

Have documentation of how you arrived at your payroll numbers available, but not copied, for the auditor. Often the auditor will only take your summary and a few pages of your documentation that the auditor will ask you to copy for them.

Talk to appropriate employees about attire and duties for the day of the audit.

Stay with the auditor at all times. The auditor should not be allowed to wander around the premises and question employees about their duties.

Ask the auditor to send you a copy of their worksheets. Get auditor’s business card so you can follow up for the worksheets.
Confirm the payroll and classifications from the audit worksheets as soon as possible to avoid any mistakes.

We have created a simple audit checklist to help minimize the audit aggravation. If you’d like a copy, contact me at eric@arboriskinsurance.com.

Written by: Eric Petersen

Do you Have the Right Work Comp Policy?

Do You Have The Right Work Comp Policy?

Almost every day we are asked, “How can I lower my Work Comp cost?” While the answer for each tree care company is specific to their situation, examining the type of the Work Comp policy is one way to lower the cost. Below are the most common types of policies that are available for tree services. Now because Work Comp is regulated at the state level, each state operates a little differently, so unfortunately, some of these policy types may not be available in your state.

 

Guaranteed Cost – The vast majority of tree services have this type of WC policy. A Guaranteed Cost policy gives the insured company confidence in the total cost of the policy. The rate is set at the beginning of the policy period, payments are made, then the premium is adjusted at the end of the policy term according to the actual payroll the tree service incurred during the policy. Injuries only affect future policy premiums, not the current policy year.

 

Dividend – A Dividend policy acts exactly like a Guaranteed Cost policy throughout the year except the policy holder has a chance to earn some of the premium back after the policy year is over. This premium that is given back to the policyholder is called a dividend. Dividends can be either a set percentage of the final premium (called a Flat Dividend) or a sliding scale percentage based on the claims that happened throughout the year (called a Variable Dividend). The dividend amount is negotiated with the insurance company before the start of the policy.

 

Depending on the size of your company and the strength of your safety program and financials, you may want to consider the following Work Comp options. These plans are much more sophisticated and require a strong understanding of the risk/reward involved with them.

 

Deductible – Deductible Work Comp policies also utilize the Guaranteed Cost policy format except they contain a provision for a deductible. The Work Comp deductible works just like any other insurance deductible, where the insured tree service pays the first amount of a claim and the insurance company pays the rest. This can be a small dollar figure like $1,000 or a large amount like $100,000. An aggregate (per year) deductible can be negotiated at the beginning of the policy to cap the out of pocket expenses.

 

Retrospectively Rated – With a Retrospectively Rated Work Comp policy, the insured tree service pays a fixed cost throughout the policy period and then the premium is adjusted at the end based on the claims that occurred. This plan setup offers the greatest potential savings but also could be the most expensive depending on how the injuries unfold for the year. There is a minimum and maximum premium assigned at the start. A common minimum premium would be 50% of the Guaranteed Cost while the maximum could be 150%.

 

All types of Work Comp policies are designed to finance the injuries that occur within your organization. Selecting the type that fits your company best can be complex, however, the rewards of better cash flow and lower cost can be well worth it.

Written by: Eric Petersen

7 Deadly Sins of Work Comp

7 Deadly Sins of Work Comp

Is your work comp program not working for you? Read the 7 Deadly Sins of Work Comp from ArboRisk Insurance, the experts for tree service insurance: 7. Allowing injured workers to stay at home 6. Assuming your classifications are correct 5. Not monitoring your claims 4. Not being prepared for your premium audit 3. Thinking that your Experience modification cannot be controlled 2. Accepting the fact that injuries are a cost of doing business 1. Believing all work comp programs are equal! Need help to avoid the 7 Deadly Sins of Work Comp? Contact ArboRisk to have a free work comp cost analysis with a Certified Work Comp Counselor!

Written by: Eric Petersen