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.
We have all seen the solicitations from ADP, PayChex and the like relating to linking your workers’ compensation insurance to your payroll system. While I do not dispute the immediate benefit of such an arrangement, in most instances the cost/benefit analysis reveals that the costs are significantly higher for most businesses.
Here’s a quick breakdown :
Administration Costs:
Linking payroll processing cuts down on admin expenses in terms of managing, preparing and executing workers’ compensation audits. This is a big benefit here… Every time you process payroll the workers’ compensation premium is charged based upon your actual payroll figures, thus no more workers compensation audits as the numbers are known, verified, and substantiated every processing period.
While this is certainly true for larger organizations the workers’ compensation audit process can actually be beneficial.
1. It allows your company to hold on to and deploy cash internally to get a rate of return rather than give it to the insurance carrier. Manage your cash flow, budget properly for the audit so you have cash on hand down the road.
2. It allows you to watch for, exclude, and allocate payroll to lower insurance premium classifications rather than have all your payroll allocated to the higher-rated classes. The audit process allows you to at least once a year take a deep dive into your organization’s job descriptions, payroll classes, and workload distribution to create better cost efficiencies. If you simply run payroll and pay workers compensation premiums you lose the benefit of this analysis.
Rates:
The payroll companies tell you that they are so huge they have negotiated preferential rates with companies like Hartford where you can leverage their buying power. This may be true in certain instances in the FIRST year. The reality is they have really negotiated better commission structures for themselves since they are leveraging their marketing and payroll platform, delivering clients to their preferred insurance carrier in droves.
What both the insurance carriers and the payroll companies don’t tell you is that rate creep sets in soon thereafter. The renewal rates for workers’ compensation policies done through payroll companies are almost double the national average. Knowing this, insurance rates rise incrementally over a period of months and years beyond what you might pay through your agent or broker who manages the purchase each year. The payroll companies and the insurance carriers are taking your customer malaise right to the bank.
Claims:
This is the biggest cost differentiator for me. If you’re a small mom and pop with less than ten employees who never put in a claim, perhaps the simplicity of linking workers’ compensation insurance and payroll is worth the additional costs noted above, as time is money.
If you are a larger organization greater than ten employees who does have one or more workers compensation claims every year or two then this is a very bad deal for you. Workers’ compensation insurance is essentially a very expensive credit line. When you have a workers’ compensation claim it’s your checkbook, but it’s the carrier who writes the check as most of the claim is charged back to you the customer. Sometimes with small comp claims under $15k, you will pay more back in premiums than the claim is worth.
Thus over 3 years that $15k claim cost your company $17,400 in additional premium charges as workers compensation premiums use claims experience as one of their significant pricing variables. There needs to be a workers’ compensation claims process in place that can help manage the additional costs which are substantial. In the absence of this process, your company’s cost structure becomes imperiled which hurts your competitive position.
In short, there is no workers compensation claims process in place with the payroll companies. They are experts at processing and passing the costs and fees down to you.
Bottom Line:
We believe that for organizations that have higher labor costs, higher injury rates, or have more than three labor-oriented job classifications linking payroll to workers compensation insurance has a much higher cost structure long term. It’s critical that when it comes to workers’ compensation insurance you need to have an advocate or risk advisor on your behalf that knows the system, the rules, and can help manage the claims process to an effective outcome. To simply ignore these critical functions, and sign on the dotted line with the likes of ADP or Paychex is essentially doing your strongest competitor a huge favor as your fixed costs just took a large increase.
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.
