Change Auditors Change Classification Codes – What’s up with that?

We were recently asked to review a file by an insurance company underwriting department. The insurance company had changed independent auditors from the previous year. The same insurance company insured this employer for several years. After completion of the audit by the new auditing firm the underwriter discovered a large swing in premium from shop work to clerical. This was a significant difference which caused the underwriter to be concerned as to the accuracy of the new audit.

Here’s the scoop. The employer manufactures custom granite and marble counter tops. This manufacturing operation is conducted in their shop with sophisticated, computer driven precisions cutting machines. Granite or stone slabs are received from their supplier in a rough natural state. They are stored on premises until a client orders a top. Once an order is received their data entry technician will enter computer generated dimensions into their cad program and complete the design phase of the granite milling operation. The design work is performed by a qualified designer on computer equipment located in a separate design room physically separated from any manufacturing operation. The data imput or design employees have no interaction with the cutting, grinding or polishing phase of manufacturing.

Once the data is entered into the computer system it is electronically transmitted to the cutting and polishing machines located in the manufacturing area. The raw granite slab is then loaded by shop employees onto the cutting and polishing machines where it’s transformed into a custom designed counter top.

Data entry employees have no contact with the manufacturing floor.

Upon examination of the audit information it was discovered that the previous auditing firm had lumped the payroll for all designers into the code used for the shop or manufacturing process. The new auditing firm separated the data entry employee payroll from the shop employee payroll. Code 1803, Stone Cutting or Polishing NOC and Drivers, was used for the shop employees at a $12.71 rate per 100 of payroll. Code 8810, Clerical, was used for the data entry designer employees with a $.39 rate per 100 of payroll. When the new auditor shifted $119,000 payroll, which represented the payroll for the data entry designer employees, from code 1803 to code 8810, the result was a $14,661 reduction in manual premium for the employer.

This is where I remind you how details make the difference when it comes to the proper workers compensation classification of an employers operation. With this case it seems several years back there was a shift in the way the employer conducted their process. At that time they upgraded their cutting and polishing systems to a more sophisticated computer controlled operation where all the data entry was performed away from the shop by trained data entry employees. The workers compensation insurance company was not provided with that information by the employer and it was not caught by the previous auditing firm and the employer paid many more premium dollars than they needed.

And that’s why it’s important to conduct premium audit and classification code reviews!

Need help with an audit or code problem? Give us a call or drop us an email. We may be able to help!

Hope this helps you out and thanks for reading!

Topic Menu: Workers Compensation Codes and Classifications