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6 years ago · by · 0 comments

Workers’ Compensation Audits: why it pays to manage overtime and independent contractors

Workers’ compensation requires an end of the policy year audit to assure proper premium is charged. This process protects both the insured and insurers.

Think through this process to make it easier, and cost saving. First, choose a policy year that creates an easy audit. The calendar year works for many companies. You already must report payrolls to the US government, the paperwork is essentially done. Calendar quarters work for the same reason.

If you prefer to use your corporate tax year, go ahead. If you complete quarterly profit and loss, you can use a financial quarter. But choose an annual period which already has an audit trail.

Keep payroll records separate for each workers’ compensation classification. Normally, this record keeping is straightforward. The same people specialize in certain tasks: clerical, sales, labor, or drivers.

Some operations can be more complex. If labor crosses from one specialty to another, perhaps a carpenter helps pour a concrete slab, that payroll should be split on an hourly rate. The higher rate applies otherwise.

Demand any subcontractor, for example a hood cleaning crew for a restaurant, provide a Certificate of Insurance (COI). Technically, insurance companies can charge for the payroll portion of any contracted work in the absence of a COI.

If you use to a non-covered contractor, keep those records to properly assign a discount for premium.

Lastly, keep records to isolate overtime pay. Overtime payroll receives a discount for premium purposes.

Make audits easier. Choose a convenient policy period. Keep records for independent contractors with COIs, and payments to those without. Isolate overtime pay. Segregate individual payroll by classification if that individual works in multiple job descriptions.

Your premium will be more accurate with a minimal additional management effort. And, the default position is always to increase payroll, and therefore, premium.

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Scurich Insurance Services
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