Category Archives: Workers Compensation Premium Audits

Workers Compensation Premium Audits

Workers Compensation Insurance, Workers Compensation Premium Audits

Owing Money to the New York State Insurance Fund

We wrote this article to help folks understand what their options are when they want to return to the New York State Insurance Fund, usually because the private marketplace won’t provide coverage due to class of business or poor loss history. This is very common as the private sector in the New York State Workers’ Compensation marketplace is thin at best. Thank our friends in Albany for that as the rates are too low for insurance companies to make money which drives the employers to the New York State Insurance Fund which is the carrier of last resort. I’m off my soap box now, back to the issue.

What transpires most of the time is that a company gets cancelled from their private insurance carrier due to losses or the carrier is no longer writing that class of business. An application gets made by the company or their broker as the file makes it way to underwriting. Here is where it gets interesting.

The underwriter does some basic research to see if either the company or its officers were ever underwritten previously with the NYSIF. Most carriers only search for prior organizations being written. State Fund underwriters run searches based on phone numbers, physical addresses, FEINs, and owners’ names as listed on the applications. Further, they ask in the underwriting process for tax returns, prior audits, and experience modification worksheets. Thus they have a veritable treasure trove of information. As a side note, it’s becoming increasingly difficult to hide information from insurance carriers as more and more info is publicly available and searchable. Evading a carrier’s underwriting processes is no longer a strategy for companies who have poor claims histories. Based upon the above underwriting requirements it’s difficult to not be caught if in a prior life you or your partners owed money to the New York State Insurance Fund.

Now what? If you suspect this may be true and you are getting cancelled, start the process early as it could take time to sort this out. Don’t wait as it could take months to get on the other side of this issue. Essentially it’s best to break your challenge into two separate issues.

  1. You need to bind coverage for continuity. Section 26-a says an employer is liable for a penalty of $2,000 per 10-day period of noncompliance, plus the actual award (including both compensation and medical costs), plus any other penalties the Board assesses for noncompliance. In cases involving severely injured employees, the medical costs alone could be in the hundreds of thousands of dollars per injury. This is your top priority.
  2. Second, you need to confirm the accuracy of what they are billing you for. This should be delegated to a specialist who can sort the wheat from the chafe. Quite often the amount being invoiced is incorrect, almost always in the NYSIF’s favor.

We suggest you quantify the problem first. Order a copy of the back up documentation the NYSIF fund is basing their prior audit invoices on. If it’s based on a past New York State Insurance Fund Workers Compensation Audit, order the worksheets they based their calculations on so you can controvert the audit. Further we suggest you hire a workers compensation premium recovery specialist to help you sort through all the rules and regs that apply to the workers compensation premium audits. Based on our experience, north of 63% of these audits are incorrect in favor of the NYSIF or private workers compensation insurance carriers.

Where They May Challenge You

We had a recent instance where a company was sold to some of the employees of the firm. The company owed the NYSIF money from over 10 years ago. The current owners stated they had no knowledge of the liability. Through the underwriting process, they picked up the names of the current officers of the company and did a search. They found that one of the officers of the company had a role in a prior audit from 10 years ago as he signed the audit papers. Even though he was technically only an “officer” and did NOT have an ownership interest in the company the NY State Insurance Fund took a hard position and stated that the officer did have direct control over the aspect of the company that related to the workers compensation audit as he signed for the audit and was a supervisor. Thus they ruled this particular company still owed the money to the NYSIF. This, like many rules, came about because folks who owed the NYSIF money were putting companies in their wives names then stating that they didn’t owe money from prior sins.

Where You May Challenge Them

It comes down to people, especially executive officers. The only instances where I have seen them make an exception is when there is absolutely no correlation in the people of the company whereby the company name is mistaken. Companies can win these if they dive into the owners and officers. If there is no executive officers in common between the company that owes the NYSIF money and the company being denied access it’s difficult to assert their denial.

If You Can’t Get it Overturned, but Still Need Coverage

There is a solution to the problem, if you get stuck between a rock and a hard place. Our Risk Advisors have the ability to get the amount you may owe financed over a period of time. Our finance company will pay the State Fund the money your company owes from a prior audit which then “unlocks” the eligibility of entry into the NY State Fund. The NYSIF will then quote your account and bind within several days.

Like most things in life, we must face our challenges and issues head on, as they simply don’t go away by throwing them into the circular file. The NYSIF plays a very critical role in the NY State Workers’ Compensation system as they will always write you a workers’ compensation policy irrespective of your loss history. The only caveat is you can’t owe them money from a previous life as their memory is so good they make elephants look absent-minded!

Workers Compensation Insurance, Workers Compensation Premium Audits

Important Updates to Your Experience Mod

The NCCI (National Council on Compensation Insurance), is a group that calculates Experience Modification Factors for companies across the entire United States. Some states have their own rating bureaus due to their size and complexity. For example, New York and New Jersey have the NYCIRB & NJCRIB respectively. For detailed explanation on what your Experience Modification Factor is and how it’s calculated see this site.

Some History

In the 1940s, Experience Modification Factors started being calculated, and they were based upon the dollar figures related to claims at that time. Amazingly, despite the rising costs and inflation, there were very few changes to the calculations between the 1940s and 1998. Then, following the changes in 1998, there were hardly any until 2013. In 2013 the NCCI, and the individual states that calculate their own Experience Modification Factor, adopted an updated “split points” policy that just means a simplification of the difference between the “Primary” and “Excess” parts of a Workers’ Comp claim. The Primary effects your Experience Modification Factor much more harshly than the Excess. By weighing the Primary heavier than the Excess, it protects against one or two larger, outlier claims throwing the calculations off completely (and unfairly).

The way the changes were implemented is that the Primary Split Point was formerly 5,000, and was increased in 2013 to 10,000 and then, over the next two years, would slowly increase to 15,000 which is where the NCCI believes it actually should be these days. (More on that here.)

Finally, on August 12th, 2015, the NYCRIB announced that it had approved the latest increase up to the 15,000 effective October 1st, 2015, as originally outlined. (More on that here.)

What This Means for your Business

What this means is that most companies will see another increase in their Experience Modification Factor following their next recalculation. That takes place on their “Unit Stat Date,” and, if left unchecked, your business could face higher rates, possible penalties, and Labor Department Violations.

What You Can Do About It

First, have you had your Experience Mod verified for inaccuracies? If not, it is imperative that you do so. As with any other calculation, there is a high proponent for errors.

The next step is to have your losses analyzed for personal trends and commonalities. If you want to see where you’re going, you should see where you’ve been. More than likely, you’re destined to repeat history.

Lastly, implement a risk management strategy to manage these claims more closely in order to exert some influence over them. Many companies are often surprised that these primary claims cost their company 30% more than it cost the insurance company. If you knew that, wouldn’t you want to do something about it?

To learn more about your experience mod and take charge against this issue, click here.

 

Construction Practice Group Content, Food & Beverage Practice Group Content, Human Services Practice Group Content, Risk Management, Transportation Practice Group Content, Workers Compensation Insurance, Workers Compensation Premium Audits

Workers Comp Class Codes: Proper Use

Where your money goes when you select the wrong class codes.
One of the fundamental components of workers’ comp insurance pricing is the process of classifying different workplace exposures into a system of codes. Each workers comp code has an individual rate dependent on the risk of that exposure. A worker’s comp classification code for clerical work has a much lower rate than the worker’s comp codes for construction work. The reason being, the average exposures of those two types of employment are much different.
 
  • New York Code 5000 – Chimney Construction – Rate $29.05
 
  • New York Code 8810 – Clerical Office Workers – Rate $0.27
 
Yet, when you move into less obvious examples, the question of proper classifications becomes much more complex. Unfortunately, the use of an improper code is very easy and happens more than it should. Improper code use can be an expensive mistake for a business. It may end up costing them tens of thousands of dollars per year(sometimes hundreds). Some businesses spend years slotted in more expensive class codes.
 

Employers can use more than a single classification code on a policy

Employees group into their classifications and their payroll will vary accordingly. Sometimes small details can make a big difference in which classification code you use. Which, in turn, can make a big difference in rates and premiums. As a business owner, it is important to understand the codes which classify your employees. Be sure the definition includes the work they perform. To do this, you can use the links we provided at the bottom of this page. If your business operations change, you must re-visit your classifications.
 
When you make a mistake, it’s usually at the beginning of the policy year and not noticed until you receive the results of your worker’s comp audit. You’ll realize the increased premium even though your payroll stayed the same. The auditor, the broker, or the business owner may make the mistake.
 

When an Auditor Makes a Mistake

 
Sometimes an auditor will place employees in the wrong class code. This is unfortunately simple to do because there are several hundred class codes. Auditors often claim this is the fault of the business owner. They will often say the business owner did not provide enough information for proper classification. To make sure this doesn’t happen, someone from the company should stay with the auditor at all times. This ensures the auditor has enough information for the placement of employees into the proper class code. Handing over financial information to an auditor will almost always create a problem. After all, the worker’s compensation audit is designed for speed, performed by an outside firm that pays the auditor $150 or so per audit. That person wants to hurry to get in and out because time is money. Further insurance carriers by law have only a small window in which to perform this audit as mandated by state law. Finally, if they misclassify an employee it’s almost always in the carrier’s favor because the DEFAULT is to the highest-rated code.
 

When a Broker or Business Owner Makes a Mistake

 
By far the most common mistake a business owner or broker makes is putting too much payroll into clerical or outside sales codes. A general rule: if the employee who is classified into clerical has any interaction with customers, takes money from customers, or performs any job of the governing classification, they will move into the governing class at audit. This will cause the employer to suffer an unexpected cost for his/her worker’s compensation premium. These codes are abused and when it’s audit time it’s the auditors’ job to catch the abuse. Sometimes businesses forget to split their payroll into their general operations and clerical. This actually causes them to pay way more than they should.

 

Construction is Especially Important

 
For construction work, each distinct type of construction or erection operation at a job or location shall be assigned to the classification which specifically describes such operation provided separate payroll records are maintained for each operation. Any such operation for which separate payroll records ARE NOT MAINTAINED must be assigned to the carrier’s highest-rated classification. Applying to the job or location where the operation is performed.
 

The Bottom Line of Workers Comp Class Codes

 
The bottom line is to recognize that errors do occur, and they can be costly. But, by knowing what to look for, and not accepting every classification as correct, you can save significant amounts of money.
 
If you haven’t been doing this, worker’s compensation premium recovery (Comp Check) is something you should consider. It checks for class code errors, experience mod errors, and more. Comp Check runs on a contingency basis. Thus you don’t get charged unless we (1) find errors and (2) are successful in recovering money on your behalf. We can look back on three policy years. It’s a great tool to correct past errors, but it is limited to that. As Risk Managers, we of-course suggest you partner with someone (like us) that will help prevent the errors in the first place. If you rely on premium recovery, you are resigning yourself to splitting money that should be yours.

Workers Comp Class Code Lookups

You can look up your specific codes and see the history of rates for those codes:

 

Construction Practice Group Content, Workers Compensation Insurance, Workers Compensation Premium Audits

New York Construction Payroll Limitation

Effective for workers compensation policies that begin on or after July 1st, 2014 for those companies that perform construction work in N.Y. the New York Construction Payroll Limitation cap will be $1,212.98.

For those who need a re-fresher; beginning in 1999 the NY Legislator passed a law that essentially caps the amount of construction payroll for certain classes of construction labor. If you are unsure if any or all of your employees qualify for the limitation, please CLICK HERE for a listing.

The reason the limitation was enacted was to give Union and Prevailing Wage Contractors the ability to be more competitive against open shop firms. They complained, rightly so that because they pay a higher wage they are being unfairly penalized as the risk profile doesn’t change. The amount they pay on workers compensation premium is considerably higher.

Thus, if your employees make more that $1,212.98 in a given week; for workers compensation premium audit / calculation purposes the maximum payroll used to calculate the workers compensation premium should be $1,212.98.

 

If you have any questions about the New York Construction Payroll Limitation, please contact a Risk Advisor for clarification.

Workers Compensation Insurance, Workers Compensation Premium Audits

Preparing for Workers’ Compensation Audits

Are you organized for your workers compensation audits and do you know what they’re all about? It’s no secret that the word ‘audit’ tends to scare people, but as long as you have all the paperwork relating to whatever is being audited, you should be fine.


There are some things about a workers’ comp audit that are a little different to, say, an accounting audit. In the latter case, it is a check of all account keeping for a period to make sure everything is being done as it ought to be done.

There is an aspect of a workers’ comp audit that is like that, inasmuch as all the paperwork relating to your employees will be checked. However, in addition to that, one of the reasons your worker information is being checked is to set the level of your workers’ compensation insurance. To do this, you need to provide the auditors with accurate information about the number of workers you have, a comprehensive list of their tasks, what they’re paid and what, if any, work is outsourced to contractors. 

The level of workers’ comp insurance that is set after workers compensation audits dictates the level of the premium you will pay for the coverage. There may be a temptation for some employers to fudge the information in order to achieve a lower premium, but that could backfire if you are caught. As is the case with all audits, it pays to be upfront and give accurate information.

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Workers Compensation Premium Audits

Being Prepared for Workers Compensation Audits

The idea of audits of any kind may strike fear into business owners but this needn’t be the case. As long as you maintain accurate records and have the required information to hand, you shouldn’t experience any major difficulties. In this respect, there is no real difference between the types of audit you may experience – from a financial audit to workers compensation audits.

Workers’ compensation audits can be a little different inasmuch as they are used to establish what level of coverage your business needs to have and to establish a rating. You need to be able to provide the auditors with information about how many people you employ, the work they do, what they are paid, and also, whether there is work for your business that you outsource to contractors.

It really is just a matter of accurate record keeping and being upfront about your staffing. Workers compensation audits are a necessary part of establishing your level of coverage. In any case, there’s not a lot of point in withholding or misrepresenting the facts, as it can impact on your coverage. Being underinsured is financially risky and paying for more coverage than you need is just unnecessary. The moral of the story is, get your records organized and maintain them so you are always prepared for an audit of any kind.

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Other, Workers Compensation Premium Audits

Record Keeping for Workers Compensation Audits

As a business owner, you know that you may experience regular auditing – some audits you will initiate internally, to monitor your business progress. Others may be initiated by outside entities. The key to getting through an audit with the minimum amount of stress is organisation, so each time you set up something new in your business you should do so with a mind to that system being investigated at some point. For a business that goes from being a one-man operation to having employees this includes starting up appropriate coverage and being prepared for annual workers compensation audits.

Different states have slightly different regulations regarding workers comp, so you need to check your local authority to make sure your business complies or speak to an agent for advice about the requirements for your business.

When you do take out the coverage, you should start a system where you keep records of everything and anything that relates to your employees, contractors and payroll. The information you will need for workers compensation audits includes anything that relates to the work your employees do, and the hours they’ve worked. You’ll also need to keep records relating to contractors. Your record keeping needs to be accurate and comprehensive so that the auditor can make the right assessments for the level of coverage required for your workers’ compensation policy.

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Other, Workers Compensation Premium Audits

Preparing for a Workers Comp Audit

What exactly is an audit? The dictionary says it is a thorough examination or check – an in-depth examination of every part of a process. That applies whether you’re talking about accounting audits or workers compensation audits. You usually hear the term in relation to business. Basically, it means going over everything to do with whatever part of the business that is subject to the audit.

Should you be worried about a workers compensation audit? Well, the truth of the matter is you should only be worried about an audit if you haven’t been straightforward in your work practices as it is now a felony to intentionally mislead or misrepresent your risk to an insurance company. However, many people get worried about audits simply because they’ve not kept paperwork up to date – which can happen due to time pressures. In that case, facing an audit means scrambling around trying to get things in order that should really have been done as part of normal business practice.

As long as you maintain your paperwork, and you aren’t involved in anything you shouldn’t be, an audit need not be a stressful experience. You should have accurate records of all your financial income and expenses for an accounting audit. For workers compensation audits you need to have employee payroll records up to date. For stock audits, your picking lists, order forms and invoicing will be required. The more up to date you are, the less stressful the audit should be – and the less time the auditor will need to spend on the examination!

 

 

 

Workers Compensation Premium Audits

Workers Compensation Audits

It’s a requirement of every New York business that they undertake regular workers compensations audits. These are audits of payroll records for the purpose of determining how much you should be paying for your workers’ compensation insurance. Standard procedures dictate that this will be carried out by an auditor visiting your workplace, although in some instances it may be possible to forgo the visit if you can provide a premium audit payroll statement.

Businesses are generally required to provide the auditor with copies of payroll, checkbook, general ledger, tax returns and certificates of insurance for covered sub-contractors. A premium audit payroll statement details payroll and other financial records for the period of your previous insurance policy. You will first need to confirm that you are eligible (some industries such as construction are not) and you will be sent a payroll statement form (PA-2) to complete in lieu of a face-to-face provision of business records. There will be special instructions for specific industries, which will be listed on the back of the form.

To see if you are eligible to complete a premium audit payroll statement or another report as part of your workers’ compensation audits, phone your insurance agent. They can offer advice and information on all aspects of the audit.
 

 

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