If you're like most employers, hearing the word "check" is like watching red and blue lights flash in your rearview mirror when you know you're driving too fast. 

You can be 100% sure that your company's policies are correct, but as soon as you receive the inspection notice, roll down your windshield and blame it on your driver's license, registration, and ticket. excessive speed. as you suggested. What would you say if I told you that not all audits are worst-case scenarios? 

In fact, having an annual workers' compensation audit can benefit your business. The Combined Team understands the stigma associated with the audit process. Our commercial insurance experts have helped many employers overcome their fear of doing so and turn worker's compensation assessments into business resources. 

In this article, learn not only why an annual worker's compensation audit is important, but also how it can benefit you. In this short read, learn how an occupational injury audit can benefit your business. 

What is workers’ comp insurance?

Workers' compensation insurance provides benefits to workers who suffer a work-related injury or illness. It protects workers in the event of a workplace accident and provides financial assistance and medical expense coverage. It usually includes the following:  

Necessary medical treatment

Ongoing care or rehabilitation

Lost wages

Funeral expenses

Disability benefits

Workers' compensation insurance protects employers from high liability following an accident or injury at work. 

What is a workers’ comp audit?

When applying for workers' compensation insurance, the annual premium is an approximate amount for the year of coverage. Your premium price is determined by these 3 factors:  

Workers' Classification Rating - A rate usually set by the National Council of Indemnity and Insurance (NCCI) or an independent, state-regulated rating agency that assesses the level of risk associated with workers' work. The higher the risk, the higher the score. For example, Cirque du Soleil's high-flying acrobatics cost more than prizes given to neighborhood librarians. Why? Aside from angry science sponsors refusing to pay exorbitant fees, aero performers take on more risk in their work.  

Total Payroll - The total amount of remuneration an employee receives for their work. To determine an employee's premium payable, pay the employee's salary for every $100 of their gross salary. For example: If your sole employee earns an annual salary of $50,000 with an employee classification rate of $1, your gross pay would be an employee annual bonus of $500. 

Experience Adjustment Factor - A numerical measurement of past employee claims, used to predict expected insurance costs. The experience change factor measures three years of loss history against the cost of expected losses for similar companies. 

If previous standards are lower than expected costs, the experience modification factor is less than. However, if your previous bill exceeds the expected cost, you will receive the experience revision factor. greater than When estimating annual bonuses, a change in experience factor of less than reduces costs, and a higher value increases costs. 

What to look out for when forecasting premiums for a year? What do you notice about some of these factors? These may change during the year of coverage. If your business is doing well and you decide to hire more workers, your salary will increase. 

In addition, workers' promotion rates may change if, instead of hiring more workers, you decide to allocate your workers to different roles to increase productivity. If layoffs are affecting your workers, you get the big picture. 

At the end of the year, the estimated cost of insurance should be adjusted to reflect these changes. And how can you compare estimated premiums with actual year-end costs? With crash tests. 

A workers' compensation audit is a review of workers' pay stubs and classification records for the five policy years. It is used to determine if the estimated premium for a policy year matches the actual cost of insurance at the end of the year. 

Why should you do an annual workers comp audit?

The short answer to this question is "because we have to". By law, workers' compensation contracts that require a workers' compensation audit must be done at the end of the year. But if requirements alone aren't enough, explore the many ways that a workers' compensation audit can benefit your organization. 

5 ways your annual workers’ comp audit can benefit your business

Here are five reasons and benefits to conducting an annual workers' compensation audit.  

1. Your workers' comp audit prevents you from paying penalties

As a legal requirement, workers' compensation verification has legal implications. Failure to act on a capacity test notice can result in significant penalties. Depending on your business location, penalties for not completing the Annual Workers' Compensation Diagnosis will be added to your initial premium by 25% to 50%. 

2. Your workers' comp audit ensures your insurance premium is correct for your coverage

By checking workers' compensation, you can make sure you're getting the coverage you need at the right price. The purpose of reviewing worker compensation each year is to determine if estimated costs are over, under, or under budget. 

If you overpay at the beginning of the year, the difference will be refunded to you after the annual audit. In this case, the review is designed to save money. Without this insurance, you may not even realize that you have paid too much. If the estimated premium is less than the actual cost of coverage, you will be charged the difference after final review. 

Paying an extra premium at the end of the year may not seem like a benefit, but paying the difference each year ensures your business is in compliance and remains compliant with workers' compensation regulations. Please also note that insurance companies may perform audits within three years after the year of coverage. 

So let's say you haven't been through a workers' compensation test in three years and you need to be tested during that entire time. If you pay too few premiums over three years, the total number of claims you receive can become untenable. 

If the payment amount is not enough due to cheap financial planning, etc., you can avoid accumulating expensive insurance premium costs by doing an annual work accident report. 

3. Your workers’ comp audit eases the coverage renewal process

Workers are required to have workers' compensation insurance, with some exceptions. If the year-end review is not approved, the insurer may decide to withdraw the claim. This means you will have to find a new supplier. 

And with a history of workers' comp audit violations, finding a new trucking company can become increasingly difficult. In addition, any workers' compensation offer you receive may be more expensive due to your history of non-compliance. Conducting an annual workers' compensation audit makes it easier and cheaper to renew coverage. 

4. Your workers’ comp audit benchmarks insurance premium costs

After the annual audit, you will receive valuable information about the cost of your insurance premiums. This means you always have the information you need to compare your premiums with those of other comparable companies. 

5. Your workers’ comp audit incentivizes organized record-keeping

An employee compensation assessment includes an employee classification and an evaluation of total payroll costs. And how will the auditor verify this information? By reviewing job descriptions and payslips.  

To do this, these records must be up-to-date, organized, and available for review. Therefore, checking employee compensation is an incentive to have proper and accurate documentation. This protects you from other unrelated and potentially damaging compliance complications.  

Next steps to a worry-free workers’ comp audit

If you've ever been here, you know that just imagining exams can be scary. After reading this article, I know that I don't need to worry about annual salary review for employees. In fact, getting it done is good for you and your business. 

I have repeatedly received the following comments from customers; "Stuart, don't worry about [this year's] audit this year. We got a refund of the labor audit." This mentality is understandable since everyone knows how difficult it is for an insurance company to split their (your!) money. The client believes that receiving a reimbursement check after a workers' comp audit should be an indicator of processing, valuation, etc. Fit. But that's not really the case. 

Almost all of the workers' comp audit reimbursements you'll receive from your workers' compensation insurance company happen when business activity (payroll) declines. For work compensation, you must pay a fee for every $100 of wages. So of course you'll get a workers' comp audit refund at the end of the year if payroll falls short of your original payroll estimate. This is the usual result of a workers' comp audit and has nothing to do with fair valuation. 

Workers Comp Audit: What Could Go Wrong?

In fact, when I did a workers' comp audit on past overcharging policies, I found errors that caused the workers' comp audit refunds to be even between the years. which annual payroll audits return refunds and the years leading up to additional premiums. You could have gotten a $7,000 refund, but he must have $27,000!  

One of the reasons errors are so common is that there are so many moving factors in the accurate calculation of premiums. 

Determining accurate work comp payroll

Determining proper employee classification

Auditing Experience Modification Rate data

Schedule Rating (safety) Debits & Credits

Auditing Contractor's Credit Calculations

Proper application of mid-term endorsements

Rating Bureau rule & State Regulation compliance

and so on....

What Else Could Go Wrong Beyond Your Workers Comp Audit?

In addition to excessive fees that can be resolved with a workers' comp audit, there may be some issues that you can only resolve with an extension. Maybe you're not in the right program. Depending on your claim history and risk tolerance, you may be able to see the overall cost of a guaranteed cost vs. with group restrictions and discover that there are better ways to finance this risk (save money). 

Beware Of The Work Comp Sleight Of Hand

Another issue with your renewal could be to carefully consider your rate and "underwriting company". Is your service provider competitively priced? Has your account moved from one of your carrier's lower-priced registrars to a higher-priced registrar? This is a common way for workers' compensation providers to maintain the amount they charge in a reduced rate environment or when your experience change rate calculation is reduced. 

For example, a traveler has several registrars (not an exhaustive list, like what I found in my head!), each with different rates:  

The Travelers Indemnity Company

The Travelers Indemnity Company of America

The Travelers Indemnity Company Of Connecticut

Travelers Casualty and Surety Company

Travelers Casualty Insurance Company of America

Travelers Property Casualty Company of America

etc.

I am currently looking at a Missouri based company (Traveler account) whose history is:  

19/20 Current Policy - The Travelers Indemnity Company Of Connecticut (most expensive of these 4 based on currently filed MO rates)

Last year 18/19 - Travelers Compensation Company (2nd most expensive of these 4 based on MO rates currently filed)

17/18 - The Travelers Indemnity Company of America (least expensive of these 4 based on MO rates currently filed)

16/17 - Travelers Property Casualty Company of America (3rd most expensive of these 4 based on MO rates currently filed) 

(Important: it is not a blow against tourists. All insurers do this because national regulations do not allow an individual insurer to prioritize their rates.) 

So this company may not know (yet) that it has faced increasingly expensive underwriters over the past 2 years. The pay environment in the workplace in Missouri, like the rest of the country, has declined in recent years, but a company like this has failed to capitalize on its benefits (at least not by any means). is the full benefit). 

Many customers are working hard, reducing claims and reducing experience mods, but are still not seeing the price drop as expected due to "circumstances" such as a change of underwriting company, an increase in debit price (or a decrease in credit). use), etc. feel that "something is wrong" often their instincts are correct. 

How Do I Know If I'm Getting A Good Price For Workers Comp Insurance?

A good starting point is to calculate your costs per full-time employee. If calculating this metric annually, you can use it to benchmark it by comparing it to industry results found in RIMS's annual benchmark survey. It's pretty straightforward to calculate the total cost of workers' compensation/headcount, but let me know if you have any questions (e.g., how to account for seasonal and temporary workers). 

Cost per FTE helps you see through the shadow of wage fluctuations. Your rising or falling payroll makes it hard to tell if your plan is getting more expensive or cheaper. When you hire, you expect to be paid more for paid work and the business will increase tremendously. However, as your payroll grows, you can track this cost per FTE to ensure the increase is ONLY caused by your payroll increase and not by some other factor. 

On the other hand, if your total work compensation costs decrease as a result of reduced business activity (payroll), you may receive lower reimbursements and total renewal prices while your overall cost per employee is reduced. Your time increases. In this case, assuming your plan is getting cheaper due to lower pay is an illusion if your cost per FTE is indeed higher. 

This entire discussion assumes that you do not experience volatile changes in claims each year, which would have a reasonable impact on the expected loss, price, and cost per FTE. your. But if you're steadily or steadily improving in claims management and your plan costs (cost per FTE) aren't keeping up, there's a reason. And, an independent audit could expose that or those reasons. 

Please Don't Tell Anybody (Broker) Where You Heard This!

Calculate your cost per FTE and even go back a few years. Then share the numbers with your broker. Let your broker know that you are watching this and ask them to help you lower this indicator. If you're not getting good pricing options, cost containment ideas, back-to-work ideas, and more, let me know (I have a lot!). 

Why This Is Important?

Finally, I posted the image below a month ago and I really think the upcoming checks (policies expiring in late 2020 and early 2021) will be complicated. While you can expect refunds from workers' comp audits and reduced premiums due to lower payrolls, let's be diligent about keeping everything else in place. We don't want bigger and more costly problems once our businesses and economy return to normal. 

J&L is a leading risk management consulting firm. Our consultants are experts in workers compensation reserve reviews, premium analysis, and policy audits. We can help you cut costs by reducing your insurance budget.

J&L is a leading risk management consulting firm. Our consultants are experts in workers compensation reserve reviews, premium analysis, and policy audits. We can help you cut costs by reducing your insurance budget.

J&L is a leading risk management consulting firm. Our consultants are experts in workers compensation reserve reviews, premium analysis, and policy audits. We can help you cut costs by reducing your insurance budget.