Preparing for your HFH Workers Compensation Premium Audit. Lockton Affinity Chubb Group of Insurance Companies

Transcription

1 Preparing for your HFH Workers Compensation Premium Audit Lockton Affinity Chubb Group of Insurance Companies

2 What is Premium Audit? A premium audit is a review of policyholder s records and operations to ensure that the exposure information is accurate. A policy is written using an estimated basis of premium such as payroll. An audit is performed after the policy expires to gather actual payroll. The actual figures are used to correctly adjust the premium for the commercial insurance coverage. 2

3 Why is a premium audit mandatory? State laws and statutes require an insurance carrier to audit all Workers Compensation policies. The premium audit format is based on jurisdictional requirements, as well as the size of the policy and/or the nature of the operations. The audit may be completed in one of two ways. Telephone Audit Physical Audit 3

4 Telephone Audit A Chubb telephone auditor will complete telephone audits. The audit contact will receive an from chubbtelephoneaudit@chubb.com to schedule a date and time for the phone audit. Forms requesting payroll and information about the operations will be attached to the . The forms should be completed and returned to the general mailbox or auditor at least a day prior to the scheduled appointment. 4 Note: Please add the above to your address book to avoid it being perceived as spam or junk mail.

5 Physical Audit Generally conducted on site or at an appropriate secondary location (e.g. accountant s office). This audit may be performed by a Chubb auditor or by an independent audit company hired by Chubb. 5

6 How to prepare for the audit Premium auditors gather information from books of original entry and verification from tax documents. The records required for the audit depend on the type of coverage on the policy. In order to take advantage of possible premium reducing credits, records need to be clear and concise. 6

7 Payroll Audit A payroll audit is conducted for workers compensation policies. The auditor will look for records that reflect: Total Gross Payroll / Remuneration Employees by name with job duties and working state Documents maintained to show payroll categories separately 7

8 Payroll Categories Gross Payroll / Remuneration Including pre-taxed deductions under 401K & Sec Possible Deductions (if shown separately in the records) Overtime / Doubletime (not excludable in DE, NV, PA) Severance Pay Taxable Group Term Life Third Party Sick Pay Sec 125 (excludable in CA & OK only) Unanticipated Bonuses (excludable in TN only) Vacation, Sick & Holiday Pay (excludable only in KS, SD )

9 Executive Officers, Partners and Members/Managers of an LLC Payroll limitations may apply to Corporate Executive Officers, Partners and Members/Managers of an LLC. Records must reflect the payroll/remuneration for these individuals separately. Corporate By-laws may be used to verify Executive Officers, Partnership Agreements to verify Partners and Articles of Organization to verify Members/Managers of an LLC. 9

10 Employee Classifications Clerical Office Employees (0953 DE & PA) Applies to office employees with work stations physically separated from the operative hazards (stores, yards, warehouses, construction sites) by floors, walls, partitions, counters or other physical barriers. These employees work in the office and do not travel on a regular and/or frequent basis as part of their normal duties Salespersons, Collectors (0951 DE & PA) This classification applies to employees who perform duties away from the employer s premises. This code does not apply to employees who deliver merchandise or use vehicles to deliver or pick up goods. The Executive Directors normally fall within this category if their duties take them out of the office for public speaking engagements and/or fundraising activities.

11 Carpentry Classifications 5645 Carpentry Detached One or Two Family Dwellings (TX 5403, DE & PA 0652) This classification includes erection of the sill, rough framework, roofing, wallboard installation, lathing, windows, stairs, finished flooring, cabinet installation, fencing, decking and all interior wood trim work when performed by employees of the same contractor. Code applies to rehabs as well Carpentry NOC - Commercial & Dwellings over 3 Stories in Height (0651 DE & PA) 5651 Carpentry Dwellings 3 Stories or Less (CA 5645, DE & PA 0642, TX 5403) Applies to attached dwellings, (i.e.. Apts, Condos, Triplexes) 11 Additional construction classifications may apply to employees or uninsured subcontractors depending on the type of worked performed.

12 Construction Managers 5606 Contractor-Project Manager, Construction Executive, Construction Manager or Construction Superintendent This classification applies to project managers, construction executives, construction managers, or construction superintendents having administrative or managerial responsibility for the construction or erection project. This code does not apply to any person who is directly in charge of or who is performing any degree of actual construction work. CA Bureau must approve this code prior to use of this classification code. 12 On site construction supervisors do not qualify for this classification.

13 Mercantile Operations Classifications for mercantile businesses are based on the type of merchandise sold. If a store sells several types of merchandise, each of which may be subject to a different classification, the store shall be assigned on the basis of the principle category of the merchandise sold. (51%). Be prepared to provide the auditor with a breakdown of merchandise sold and percentage of sales by category. Building materials / home improvement items Clothes Kitchenware Furniture Knickknacks Appliances Other Misc 13

14 Store Classifications Store: Retail NOC (0928 DE & PA) Applies to retail stores that are principally engaged in selling merchandise that is not described by a specialty retail store classification Building Material Dealer New Materials Only: Store Employees (CA 8017,HI 8010, NJ 8032,NY 8232, DE 0935,0935 PA),(8058 applicable in MI, TX & OR) for New and Used Material Building Material Dealer New Materials Only: All Other Employees & Yard, Warehouse, Drivers (MI&OR) New and used Material. (TX 8234) (DE& PA 0855) 8204 Building Material Yard & Local Managers, Drivers (n/a OR),(DE/PA) 0860,(MI 8107),(NY 8263),(TX 8234),(OR 8232) Applies to used or new and used building materials.

15 Drivers 7380 Drivers, Chauffeurs, Messengers, and Their Helpers NOC - Commercial (N/A: AZ, CA, NV, DE, PA) This code applies to employees who engage in duties on or in connection with vehicles and includes drivers, chauffeurs, messengers, drivers helpers, garage employees, stable hands, and employees using bicycles in their operations. This classification applies when the store classification does not include drivers. 15

16 Subcontractors / Independent Contractors Workers Compensation rules and/or state statutes require that the payroll or contract amount of subcontractors be included within the premium calculations in the event that such subcontractors do not provide satisfactory evidence of Workers Compensation coverage during the policy period. Satisfactory evidence includes: Certificate of Insurance for the subcontractors Workers Compensation policy valid during HFH audit period Certificate of Exemption (for approved states only) 16

17 Satisfactory Evidence of Workers Compensation Coverage Auditor will review the cash disbursements journal or general ledger to obtain a list of subcontractors used during the audit period. Certificates of Workers Compensation insurance or state exemption forms will be reviewed to verify coverage. Best Practices: Upon hiring of subcontractors, HFH should obtain WC certificates and/or signed exemption forms prior to work being done. Prior to the scheduled appointment date, the audit contact should review the list of subcontractors used during the audit period to ensure that satisfactory evidence was obtained. This will avoid unnecessary inclusion of subcontractors in the audit. State statutes should be reviewed to determine if exemption forms are acceptable in your state in lieu of a Workers Compensation insurance certificate. 17

18 18 Certificate of Insurance

19 Keys to a Smooth Audit Decide who should be the primary contact. This should be a person who is familiar with the work done by all departments and employees. Review your payroll documents to assure that the auditor can break out the categories of payments and separate the employees by job duties and the state of employment. (i.e. QuickBooks summary, ADP payroll registers). Have satisfactory evidence of workers compensation insurance available for subcontractors. Review the audit findings with the auditor. 19

20 Questions Please contact the auditor prior to the scheduled appointment if you have any questions. 20

21 21 This presentation is general in content and intended to provide an overview of How to Prepare for a Premium Audit and has an edition date of March This document in advisory in nature and is for informational purposes only. The information provided in this document should not be relied upon as legal advice or a definitive statement of the law in any jurisdiction. For such advice, seek legal counsel.