Workers’ Compensation policies are subject to audit so the insurance company can verify 2 things – the payroll (remuneration) and the cost of uninsured subcontractors (including 1099’s). Policies are written with estimated exposures and the audit is designed to determine the true figures for the policy period.
Payroll means gross payroll which includes salaries, commissions, bonuses, vacation, holiday, and sick pay, rental value of an apartment, value of gifts, value of meals or lodging in lieu of wages, auto allowances, and any amount by which an employee’s salary is reduced to fund a pension or deferred compensation plan.
There are specific types of remuneration which can be subtracted from your payroll amount if they are segregated including severance pay, work uniform allowances (including required safety equipment), the amount over the corporate officers payroll limitation, over time (you must show the regular rate of pay, the overtime earnings, and a summary by type of operation performed), payment for active military duty, third party disability pay and payments to inactive employees.
The task each of your employees performs matches one of the classification codes on your workers compensation policy. The next step to prepare is to assign one of your WC class codes to each employee. Be sure that assigned class code appears on your payroll records.
Premium must be charged for any uninsured subcontractors since the insurance company would be responsible for any injuries and subsequent claims brought from these employees. The next step is to have the invoices from your subcontractors available with the material separate from the labor so only payroll for labor is charged. Without that breakdown, you will be charged 90% -100% of the total invoice.
You will also need to have the following documents available for the auditor to review: payroll book, sales records, cash disbursements book, checkbook, general ledger, 1099’s and 941, NYS 45 and business tax returns.
Controlling the outcome of your workers compensation audit is challenging. The Flanders Group has been coaching businesses all across New York State on how to prepare for an audit. If you would like to know more, please call us at 800-462-6435.