The workers compensation audit process has become sophisticated! Believe it! What was at one time essentially a personal contact sport has become a high tech, behind the scenes process that effectively uses all modern sources available to verify, approve and apply rules under the guise of performing an accurate workers compensation audit. That doesn’t sound bad, after all isn’t audit accuracy what everyone’s trying to achieve? I’m not so sure, maybe…
Some employers are very familiar with workers comp rules and processes while others are not. Some have been around the block, know the short cuts and know how to otherwise take advantage of the system (read that as circumvent) while others take more of a deer in the headlights approach. But regardless who the players may be, don’t fool yourself, workers compensation issues are complicated, not for the weak at heart, and all about the money!
I guess when you consider these things then it’s not unreasonable that employers will look for ways to reduce their liability or costs for workers compensation. And sometimes the employer will look to wage reporting as an area they can reduce their cost.
Wage reporting refers to the employee payroll portion or compensation that’s reported to the workers compensation auditor and to be used in the final premium calculation. (The actual exposure used to generate workers compensation premium is called remuneration and payroll is only a part of remuneration.) Some employers play with this number by artificially lowering their employees hourly wage and making it up in some other manner such as using an inflated expense reimbursement or per diem. Not a good idea! Auditors have the tools at their disposal to assist them in determining the fair market wage for your type of business. Fraud? Not sure, but an employer should pay market wages and not try to hide, reduce or falsely report employee compensation. It will only lead to audit problems and additional costs!
A recent appealate case ruling in California upheld this concept. The employer, Ready Link Healthcare Inc., insured with the State Fund, had compensated it’s employees a low hourly wage and a high per diem. A State Fund auditor discovered this and asked Ready Link for documentation to support the per diem which was not received. The State Fund billed Ready Link in excess of $500,000 which caused Ready Link to sue the Fund, they lost and appealed. The appeal court upheld the ruling indicating that even though the per diem may have been within line of federal tax code, rules applied by the State Fund were separate and basically the two shall never meet!
Lesson Learned: Proper wage reporting is required during a workers compensation audit and what may be allowed under some tax code may not apply to workers compensation.
Hope this has helped you out!
Thanks!
