Step 1: Classifying Payroll
Payroll means gross payroll which includes salaries, commissions, bonuses, vacation, holiday, and sick pay, 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.
The first step for your audit is to assign a WC class code to each employee. Be sure that assigned class code appears on your payroll records and your workers compensation insurance policy.
Covered executive officers, individual owners, and partners are subject to minimum and maximum payroll amounts and are required to have a class code assignment based on their duties – they are not always designated as “clerical” employees.
A note regarding residential versus commercial work: If you do both types of work, separate the payroll by class code and then by residential or commercial work.
A note regarding snowplowing work: If you snowplowing, separate the payroll by class code.
Step 2: Excluded Remuneration
There are specific types of remuneration which can be subtracted from your payroll amount if they are segregated:
- Severance pay
- Work uniform allowances (including required safety equipment)
- Value of special rewards for invention or discovery (bonus)
- 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
- Payments to inactive employees
Step 3: Subcontractors
Premium must be charged for any uninsured subcontractors since the insurance company would be responsible for claims brought from these employees. It’s important 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% of the total invoice.
You will also need to have any vendor invoices available for the auditor so they can verify the vendor is not a subcontractor.
To verify coverage on any subcontractor, go to www.wcb.state.ny.us choose “On Line Services” (right column) then “Does Employer Have Coverage”. For all insured subcontractors, make a copy of all certificates for the auditor. Make sure that the policy period being audited is covered on the certificate.
If you use subcontractors from outside New York State, the following language must be on the certificate in order for it to be valid: Coverage is extended to all employees in NYS under the NYS Workers Compensation Law. Section 3A of the policy is endorsed to cover New York State.
Step 4: Present Your Audit Package
You will present to the auditor upon their arrival:
- Your classified payroll spreadsheet (sample on the next page)
- Include the breakdown for commercial versus residential work if you have a contractor class code 0042.
- Copies of certificates of insurance from subcontractors with correct language
- Receipts from subcontractors with the labor and materials broken down
- Evidence/verification of the excluded remuneration
- The following documents:
- Payroll Book
- Sales Records
- Cash Disbursements Book
- Checkbook
- General Ledger
- 1099’s
- 941, NYS45 and Business Tax Returns
Following these tips will insure your audit will go smoothly. For a copy of The Flanders Group Audit Toolkit, please call our Safety Group Department at 800-462-6435.
By: The Flanders Group, NYSNLA Insurance Program Manager