How many times have your received a workers compensation audit
and said "No way, I can't owe that much more premium"! The additional premium is well over what you had believed it would be and in your opinion there is a mistake. The first call you make is to your agent and in no uncertain terms you tell the agent that there is a mistake. You had already compared your projected payrolls to the payrolls reported on the audit and there is little difference. Your question to the agent is; how can the additional premium be so much?
Workers Comp Class Codes
Unfortunately this is not an uncommon occurrence and most of the time, the mistake is made at the beginning of the policy year when projections were made. The agent and business owner must know that workers compensation has specific rules when it comes to classifying employees and placing them in a workers compensation class code. When projected payroll and actual payroll are relatively close and yet there is a large additional premium developed from the audit, one of two things generally have happened. (1) The auditor made a mistake in the classification of employees or (2) the agent and business owner made a mistake in determining the workers compensation class code. Let's take a look at both of these.
An Auditor makes a mistake
Sometimes, although not often, an auditor will place employees in the wrong class code. This is usually the fault, however, of the business owner not providing enough information to the auditor so that proper classification can be made. Someone from the company should stay with the auditor at all times to insure the auditor has enough information for the placement of employees into the proper workers compensation class code. Simply turning over financial information to an auditor and leaving it to them will most always create a problem in the audit process.
Agent and Business owner made the mistake
Generally agents and business owners are pretty good at placing employees in the proper workers comp class code, except for one particular area. This area of error occurs when an employee that is most often performing work in a lower rate classification, will occasionally enter the work area of someone that is performing more hazardous activity. This being the case, the employee occasionally that goes into a more hazardous work space is going to be placed, by the auditor, in the workers comp class code that reflects that added exposure to injury. Let's look at an example.
Bob works in an office of a welding shop and performs clerical duties and one of those duties is to insure the welders have the supplies necessary to do their welding. To perform this function, Bob must go into the welding area and review supply levels of welding material and talk to the various welders. In this particular case, the insurance company auditor would place Bob under the code of welder. In other words, his payroll will be placed in the workers comp class code that carriers the greatest exposure to injury. This would be the welding code instead of the clerical code.
The bottom line is that when there is an additional premium due on a workers compensation policy that is large and unexpected, a mistake in classification has occurred. By understanding specific workers comp class code rules, and by taking time at the beginning of the policy year to insure proper classification of employees is done, there will be a good chance the workers compensation audit will have few surprises.