The Importance of Adequate Workers Compensation Payroll Projections –

When it comes to developing an accurate workers compensation deposit premium, accurate payroll projections are required! Payroll is one of the primary rating elements used in pricing a standard workers comp policy. Let’s learn a little about payroll projections.

For an experienced employer, one who’s been through the workers comp pricing process, it won’t come as a surprise that providing an accurate projection of rating payroll over the policy period plays an important part in managing their ultimate premium cost. But for an employer new to the workers comp process it may come as a surprise in the form of an adverse audit at the end of their policy period. 

While rating payroll is only one element in the pricing process, it does have a great impact on the ultimate premium paid for an auditable policy. It works like this:

  • At policy inception: Projected Rating Payroll x Rate = Deposit Premium
  • At end of policy period: Audit is Conducted
  • Audit Adjustment:  Actual Rating Payroll (as developed from the audit) x Rate = Final Premium
  • Comparison of Deposit Premium to Final Premium
  • Additional premium bill is sent if deposit is less than final premium or a return of premium occurs if the deposit is more than the final premium.

When an employer is asked by their agent, “What’s your payroll going to be over the next 12 months?” the agent is relying on the employer to give them accurate information. For some employers it’s an easy question to answer because their payrolls are stable and easily projected from one year to the next. But for some, their projected annual payroll may fluctuate a great deal and it’s those employers who are in danger of an adverse audit!

So when your agent asks you to project your payroll over the next 12 months, take a little time to think it through before providing an answer. Do you have any large job contracts you’ve secured that will increase your payroll over it’s normal average level? Or has something occurred that will reduce your payroll?

Just be aware of the importance accurate payroll projections play in the pricing process of your workers compensation policy. Work with your agent and be sure to contact them to adjust your policy if you see that your rating payroll will be higher than you originally thought. Don’t get caught with a large adjustment at audit. There’s really no reason for this to happen!

Hope this helps you out! Thanks!