Workers Compensation Audits – How to Prepare

Posted on September 9, 2011 by Randy Sieberg, CIC, ARM, CRM

What’s the number one mistake employers make on workers compensation audits? Not being prepared!

If you have a workers comp policy, the audit is going to happen. It just does. Whether or not you want it, it’s coming. We receive many calls from new clients after the audit process has deteriorated to a point of name calling and accusations! The clients account may be on the verge of being turned over to a collection agency or removed from the insurance companies audit department and placed in the hands of their legal department. Or their audit has been reported as Non-Compliant. Regardless the situation, once the audit process has deteriorated there is no easy fix. As a matter of fact it can be quite difficult and costly to repair…even if there are legitimate mistakes found in the audit!

We believe most audit errors begin either when a workers compensation policy is first purchased or set up or when a policy renews without review. Poor communication between the agent and their client, misunderstandings or making assumptions at these points cause many problems. Poor communication from the client with their agent or insurance company after changes in their operations have occurred also cause many problems. Frankly, problems that should not happen.

So here’s a little free advice about workers compensation audits….BE PREPARED! Take the time and prepare for an upcoming audit. Have the information the auditor has asked for ready and be available to discuss your company operations with the auditor and answer questions about the work processes and materials you use in your business. Have your payroll records and certificates of insurance ready to turn over. In general, be prepared for the audit! Then, after the audit is complete and you’ve received the results, contact an independent outside consulting firm to review the audit for you!

Lesson Learned: Prepare for a workers compensation audit! Do what’s right. Provide the correct information on a timely basis. And learn about the process!

Thanks!

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Work Comp Carrier Charges Contractor For Visit To Hairdresser!

Posted on September 7, 2011 by Randy Sieberg, CIC, ARM, CRM

It’s just not fair! Can’t tell you how many times I’ve heard someone say that about a workers compensation audit problem. Sometimes they’re right…sometimes they’re wrong…and sometimes the truth lies in between!

We were recently contacted by a contractor who operates their business as a sole proprietorship and in doing so they run their business through their personal checking account. During the physical audit of their accounting records the auditor discovered a payment made to the clients hairdresser. Please understand…this client is a construction contractor…they build things! The auditor, while at the contractors place of business, called the hairdresser to verify the payment as shown in the check register. The audit was then completed and the auditor left the business.

A few weeks later the contractor received his audit statement and some supporting paperwork from the insurance company. And guess what! Upon closer review the contractor found where the insurance company had included the payment made to her hairdresser in the workers comp payroll base for calculating their audit premium!

Wow! Strange things happen when you run your business out of your personal checking account! What about that payment to the newspaper boy?

Lesson Learned: When it comes to workers comp audits, you have to watch the details! Oh yea…if you’re a sole proprietor…think about keeping your business checking account separate from your personal one. Do you really want an insurance company auditor nosing around your personal account? It just makes things simpler!

Thanks!

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A Simple Audit Error Costs Employer $2,000!

Posted on September 6, 2011 by Randy Sieberg, CIC, ARM, CRM

We recently assisted a small employer who contacted us with a workers compensation audit problem.

He operates a small, family run auto repair garage and has had his workers compensation insurance with the same insurance company for several years. His business operations have not changed and his payroll or remuneration has remained stable. His workers comp policy was audited and shortly after that he received a bill from the insurance company for about $2,000. That may not seem like a lot of money for some people but for a small business owner that can be the difference between getting paid or not for the month!

We discovered that the audit completed this year was a self audit, where he filled out the paperwork and sent it directly into the insurance company. After a quick review of the audit worksheets we discovered the business owners payroll was included in the audit, however he, being a sole proprietor, was excluded in his state from coverage and had not elected to be included.

With a quick assessment of his situation and some communication with the insurance company we were able to make his $2,000 bill go away!

Lesson Learned: Even if you’ve been with the same insurance company for years…it pays to have your audits reviewed! After all , you never know when a $2,000 audit bill is caused by a simple, correctable mistake!

Thanks!

 

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When A General Contractor Requires A Subcontractor To Carry Workers Compensation

Posted on September 4, 2011 by Randy Sieberg, CIC, ARM, CRM

Here’s a confusing issue. In most states sole proprietors are excluded from workers compensation coverage by statute, not in all, but in most states. The issue comes when a small individual contractor with no employees who is a sole proprietor wants to work for a larger contractor. Most times the larger contractor will require the subcontractor to have a workers compensation policy in place and be included within that coverage.

So what’s up when the sole proprietor is not required by the state to have coverage but the general contractor makes that requirement. Why does this happen?

A few things are at work here. First, when a general contractor hires an uninsured sub, the general contractors workers comp insurance company, at audit time, will pick up the payment made to the sub and charge the general for that exposure. Second, it seems to just be good business to use insured subcontractors. So when a general contractor requires a sub to provide workers comp insurance it may not be because of a state rule or regulation, it may just be the cost of doing business with that general contractor or hiring party!

Lesson Learned: Here’s where I say…remember, workers compensation rules are state specific! Be sure to check with your state authority regarding sole proprietor rules. An example: some states, again not all, allow individual waivers, where an individual may waive their rights under the workers comp statutes. So check with your state!

Thanks!

 

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California After School Program Avoids Huge Additional Workers Compensation Charges!

Posted on August 23, 2011 by Randy Sieberg, CIC, ARM, CRM

It’s a win! And if you operate a Day Care in California and provide after school educational programs please pay close attention….

Sometimes doing what we do at Workers Compensation Consultants is very satisfying. We were just notified by the WCIRB, Workers Compensation Insurance Rating Bureau of California, that a decision in our clients favor was granted. That’s good news!

This case involved the classic reclassification of workers compensation codes at audit, this time by the California State Fund. You see our client operates a large after school education program throughout several communities in California and once their workers compensation audit was complete the auditor shifted their payroll from a more appropriate descriptive classification into a general category classification, one that was significantly higher in rate than the other. The effect of this reclassification was one of dire consequences, one that could ultimately have caused this business to close its doors.

We were asked by our client to review the classification change and assist with preparing an appeal to the WCIRB and a request for action in having this change reversed. After a review of the codes and operations it was determined a mistake was made in this reclassification by the State Fund. And with this decision, our client will avoid a huge additional workers compensation premium bill. But best of all…they will continue to provide valuable educational after school services in their communities!

Lesson Learned: If you operate a day care business in California and provide after school educational activities, have your workers compensation program reviewed! Don’t wait! Do it now! Contact our office by email or phone and we will be glad to assist you!

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Do I Have To Buy A Workers Compensation Policy To Work For A General Contractor?

Posted on August 23, 2011 by Randy Sieberg, CIC, ARM, CRM

Another question from Missouri! We received a call from a small contractor in Missouri who operates his business as a sole proprietorship, has no employees and does all the work himself. He wants to do work as a subcontractor for a larger general contractor and was told by the general contractor he would need to have a workers compensation policy in place that provides coverage for himself. He was told by his insurance agent that he did not have to do this and under Missouri rules was excluded from coverage. He’s confused!

This is an age old question and one that frequently comes up. I’m not going to go into the depths of “why this” or “why not that.” I’m just going to get to the point.

  • Fact 1 – Correct…in Missouri, a sole proprietor or individual owner is automatically excluded from coverage under a workers compensation policy. However they can buy a policy and make an election to be included.
  • Fact 2 – An uninsured subcontractor working for a general contractor, if injured on the job, can make a claim against the general contractors workers compensation policy and be compensated.
  • Fact 3 – If an insurance company has the potential to pay a claim then they are due a premium for that exposure.
  • Fact 4 – Even though the subcontractor may not be required under Missouri Statute to have coverage on himself, if proper coverage on the subcontractor is not in place, the general contractor will be charged by his insurance company for the uninsured subs exposure.
  • Fact 5-  Reality….if the subcontractor wants to work for the general he is either going to secure a workers compensation policy that provides coverage for himself or work out some arrangement to compensate the general contractor for the extra cost he’s caused.

Don’t forget, each state has its own rules about workers compensation that may apply differently. And there’s a great deal more about this situation that must be taken into consideration.  Important things, like the effect a claim by an uninsured subcontractor may have on the general contractors experience modification factor and loss history and more.

From a generals point of view, they should always hire insured subs. From the subs point of view, they need be aware of the problems that come out of not having a valid workers comp policy on themselves!

Lesson Learned: If you are a subcontractor be aware of the effect of not having a work comp policy in place may have on your ability to secure work. If you are a general contractor be aware of the negative effect hiring uninsured subs may have on your workers comp program! 

 

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Can Missouri Employers Separate Employees Payroll Between Carpentry and Sales?

Posted on August 22, 2011 by Randy Sieberg, CIC, ARM, CRM

We were recently asked this workers compensation question by an employer located in the State of Missouri. This employer owns a small corporation where he is the only corporate officer and has only one employee who spends a small amount of his actual time performing carpentry duties and the rest in sales. The workers comp auditor told him he could not split or divide payroll between the two class codes representing these work processes.

To begin, Missouri is a NCCI state and NCCI rules are very specific with regards this situation. You see, under certain circumstances, you are allowed to separate payroll into different classifications, however when it involves the standard exception classes of clerical and outside sales you have to be careful. If an employee performs duties under the basic classification code, in this question the basic code would be that of carpentry,  and also performs duties in the standard exception classes, then their entire payroll is to be assigned to the highest rated class code that represents any part of the employees work. And for this situation that would be carpentry.

Lesson Learned: You must be careful when it comes to separation of payroll issues and workers compensation. Separation of payroll is only allowed under certain circumstances. A mistake here could cost you thousands of dollars in additional workers compensation premium at audit time!

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How Can I Get A Workers Compensation Certificate of Insurance?

Posted on August 18, 2011 by Randy Sieberg, CIC, ARM, CRM

It’s a question we’re frequently asked…and the answer depends on the situation.

For those of you new to this topic, a certificate of insurance is a snap shot in time, a document that shows the certificate holder that a workers compensation policy is in place when the certificate is issued. A certificate of insurance, regardless of the wording provided on the certificate, conveys no rights to the certificate holder and cannot be used to modify, add or change coverage or policy conditions on the workers compensation insurance policy. Be sure to check out where to get a certificate on our website for more free, detailed information about this topic.

 So back to the question…

If you are the named insured on the policy and are asked to provide a certificate to someone else then you should begin by asking your insurance agent or insurance company, the one who you purchased the coverage from, to provide you with the certificate. 

If you’ve purchased your workers compensation coverage from a State Fund, Insurance Pool or directly from an insurance company you should begin by calling them. Many of these organizations have active websites and some may even allow you to request certificates through your online account. 

If you are any party other than the named insured asking to be named as a certificate holder then you should ask the named insured on the policy to provide this document to you…where they will in turn ask their agent or insurance company to do so.

Basic information needed to provide a certificate of insurance is the certificate holders name, complete address and fax or email. This information will then be used to complete and deliver the certificate.

Lesson Learned: If you are the policy holder and need a certificate…ask your insurance agent or insurance company. If you are somebody else and need a certificate…ask the policy holder to get one for you.

Thanks!

 

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Workers Compensation Subrogation – State by State

Posted on August 16, 2011 by Randy Sieberg, CIC, ARM, CRM

Subrogation of workers compensation can be a very confusing concept. Insurance company underwriters, insurance agents, contractors, both general and artisan, and many more are often baffled by subrogation issues found with the different states. While sometimes similar each state has its own rules and statutes regarding workers compensation subrogation.

We’ve found it almost impossible to find a good single source for access to all the state statutes concerning subrogation. Especially without joining some kind of group.  So we’ve beefed up the individual state pages on our website and now provide on our individual state workers comp law and rules pages direct access to these statutes. Be sure to visit our website if you need information about subrogation for any state.

More to come in future posts about the whole issue of workers compensation subrogation.

Hope this helps you out!

Thanks!

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A Small Employer With A Large Workers Comp Audit – Can I Afford Help?

Posted on August 15, 2011 by Randy Sieberg, CIC, ARM, CRM

It’s always a challenge when we’re contacted by a small employer who has received a surprisingly large audit bill.  They don’t know where to turn, they don’t think they can afford it, but they know they need help. Not a day goes by that we’re not contacted by a small employer with this problem….

The receipt of a large workers compensation audit bill can be devastating to a small employer. Just imagine you receive a bill for $7,000 or $10,000, seemingly without warning, and it’s due in just a few days. Large companies may be able to handle a surprise situation like this but most small employers would find it a trying burden at best. Most certainly a surprise leaving the employer scrambling around to find out what happened, trying to find answers and quickly figure out what they can do. This usually begins by a quick phone call to their insurance agent who in turn contacts the insurance company and is assured the audit was completed correctly, is accurate and the premium is due within 10 days…the result…really no help at all!

And while the employer tries to figure out what happened and how this occurred…the audit bill clock is running. Next thing you know the employer receives a past due letter from the insurance company accompanied by a cancellation of their current coverage.  All of a sudden the employer realizes they need professional help.  Some call an attorney, others contact consultants…like us…who specialize in workers comp premium issues. All look for someone that will help make their problem go away. All have the same question in mind…”Can I really afford the help I need?”  

We find most small employers are intimidated when it comes to asking for professional help in dealing with a workers comp audit problem. Most professional audit consulting firms provide a valuable service at very reasonable, affordable levels. You may be surprised!

Lesson Learned: While it’s certainly a difficult situation for a small employer…faced with a large bill and trying to find help…affordable help is out there…you don’t have to go it alone!

Thanks!

 

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