Let s Get Nerdy: Inside Tips on Florida s Workers Compensa:on with a Dose of PEOs Going Beyond the Basics Meet Your Presenter Frank Pennachio Co-founder Partner Oceanus Partners Author, Speaker and Sales Strategist Producer Coach & Educator Former Producer and Agency Owner with 25 Plus Years Retail Commercial Insurance Experience 1
About Oceanus Partners Objec:ves v Gain a greater understanding of the workers compensa:on: Classifica:on Rules; Experience Ra:ng Plan Rules; 2
Objec:ves v Brief review of how Professional Employer Organiza:ons (PEOs) work Advantages and Disadvantages of PEOs Significant risks arising from PEO arrangements Just a Few Basics 3
Source Material v Florida Statutes Chapter 440 Workers Compensa:on Source Material v Workers Compensa:on and Employers Liability Insurance Policy 4
Source Material v Na:onal Council on Compensa:on (NCCI) Insurance Manuals NCCI Manuals v Basic Manual v Experience Ra:ng Manual v Scopes Manual v Unit Sta:s:cal Repor:ng Manual 5
Word of Are you familiar with 6
Florida Workers Compensa:on Statute Chapter 440.381 Why? 7
Chapter 440.381 Submission of an applica0on that contains false, misleading, or incomplete informa0on Chapter 440.381 provided with the purpose of avoiding or reducing the amount of premiums for workers compensa0on coverage is 8
Chapter 440.381 a felony of the second degree Chapter 440.381 A convic:on for a felony of the second degree can result in a prison term of up to 15 years 9
Chapter 440.381 and a fine of not more than $10,000. (Fla. Stat. 775.082, 775.083.) And, There s More 10
Chapter 440.381 The applica0on must contain a sworn statement by the agent a?es0ng that Chapter 440.381 the agent explained to the employer or officer the classifica0on codes that are used for premium calcula0ons. 11
Notary Fraud A notary public who falsely or fraudulently is guilty of a felony of the third degree... 12
S:ll More 13
Chapter 440.381 If an employer understates or conceals payroll, or misrepresents or conceals employee du0es so as to avoid proper classifica0on for premium calcula0ons, Chapter 440.381 or misrepresents or conceals informa0on per0nent to the computa0on and applica0on of an experience ra0ng modifica0on factor 14
Chapter 440.381 the employer, or the employer s agent or a?orney Chapter 440.381 shall pay to the insurance carrier a penalty of 10 +mes the amount of the difference in premium paid and the amount the employer should have paid. 15
Chapter 440.381 and reasonable a?orney s fees. NCCI Classifica:on System 16
Classifica:on System Policy Language A. Our Manuals All premium for this policy will be determined by our manuals of rules, rates, ra:ng plans and classifica:ons. Classifica:on System Policy Language G. Audit You will let us examine and audit all of your records that relate to this policy. We may conduct the audits during the policy period and within three years ager the policy period ends. 17
Classifica:on System: NCCI Basic Manual Classifica:on System The purpose of the classifica:on system is to group employers with similar opera+ons into classifica:ons so that Subject to certain excep0ons, it is the business of the employer within a state that is classified, not separate employments, occupa:ons or opera:ons within the business. 18
Excep:ons Construc:on Excep:ons Agriculture 19
Excep:ons Mercan:le Classifica:ons - Florida Excep:ons 20
Assignment of More Than One Basic Classifica:on Florida Excep:ons - Assignment of More Than One Basic Classifica:on Qualifica:ons 21
Florida Excep:ons - Assignment of More Than One Basic Classifica:on Can the opera:on exist as a separate business? Florida Excep:ons - Assignment of More Than One Basic Classifica:on Is the business opera:on located in a separate building, or on a separate floor in the same building? 22
Florida Excep:ons - Assignment of More Than One Basic Classifica:on or on the same floor physically separated from the principal business by structural par::ons? Florida Excep:ons - Assignment of More Than One Basic Classifica:on Maintains financial records that iden:fy the principal business separate from the addi:onal opera:on? 23
Florida Excep:ons - Assignment of More Than One Basic Classifica:on NOTE: Separate general ledgers, journals, books of accounts or federal iden:fica:on numbers are not required. Poten:al Examples 24
Florida Excep:ons: Changes or Correc:ons in Classifica:ons Florida Excep:ons: Changes or Correc:ons in Classifica:ons If the correc6on is effec6ve During the first 120 days of the policy term Ager the first 120 days of the policy term, but before the final 90 days During the last 90 days of the policy term Then the correc6on is applied Retroac:vely to the incep:on of the policy As of the date the company endorses the policy with the change Only to a renewal policy, if any. 25
Florida Excep:ons: Changes or Correc:ons in Classifica:ons v Excep:ons to the previous table: Construc:on or erec:on risks; Florida Excep:ons: Changes or Correc:ons in Classifica:ons v Excep:ons to the previous table: Any omissions, misleading statements, or misrepresenta:ons in the descrip:on of the opera:on will allow for addi:onal classes to be added as of the effec:ve date of coverage. 26
Florida Excep:ons: Changes or Correc:ons in Classifica:ons v Excep:ons to the previous table: The realloca:on of payroll among classifica:ons on a policy is not considered a change or correc:on in classifica:on(s) Florida Special Classifica:ons 27
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Florida State Special Audit Rules 31
Florida State Special Audit Rules If the employer refuses to cooperate in comple:ng a final audit within 90 days from the date of termina:on Florida State Special Audit Rules in accordance with the Return of Unearned Premium rule 32
Florida State Special Audit Rules The workers compensa:on carrier may use any informa:on available to es:mate payroll Florida State Special Audit Rules The final premium charged shall not exceed three :mes the most recent es:mated annual premium. 33
Florida State Special Audit Rules If the audit by the carrier is not complete within 90 days, then audit informa:on provided by the employer shall be accepted by the carrier. (This rule does not apply to retrospective rating plans.) NCCI Experience Ra:ng Plan 34
Florida Excep:ons: Experience Ra:ng Aggravated Inequi:es 35
Florida Excep:ons - Experience Ra:ng Claim(s) Open at Normal Valua:on Date Correct Current Year Revise Experience Mod Claim(s) Closed by Next Effec:ve Date Change 5% Standard Premium Changes in Experience Modifica:on Factor 36
Changes in Experience Modifica:on Factor Decrease in Experience Mod Any :me during policy period. Or, ager expira:on and up to two preceding experience ra:ng modifica:ons Retroac:ve to the incep:on of each policy Changes in Experience Modifica:on Factor Increase in Experience Mod Within 90 Days ager the: Policy effec:ve or Anniversary Effec:ve Date Retroac:ve to the incep:on of policy 37
Changes in Experience Modifica:on Factor Increase in Experience Mod More than 90 Days ager the: Policy effec:ve or Anniversary Effec:ve Date Pro Rata from the date the insurer endorses the policy Experience Ra:ng Correc:ons in Classifica:ons 38
Florida Excep:ons - Experience Ra:ng Plan - Correc:ons in Classifica:ons v When a classifica:on assigned to a risk is revised other than: As a result of a change in risk opera:ons, or A filed and approved change to the classifica:on system Florida Excep:ons - Experience Ra:ng Plan - Correc:ons in Classifica:ons v the experience ra:ng modifica:on may be recalculated by the ra:ng organiza:on. 39
Experience Ra:ng: Non- compensable Claims Experience Ra:ng: Non- compensable Claims Claims that are reported as noncompensable are excluded from experience ra:ng calcula:ons. 40
Experience Ra:ng: Fraudulent Claims Experience Ra:ng: Fraudulent Claims that are reported as fraudulent are excluded from experience ra:ng calcula:ons. 41
Experience Ra:ng: Expenses Excluded From Losses Experience Ra:ng - Expenses Excluded From Losses v Medical or legal expenses incurred for the benefit of the carrier are to be excluded from the claims paid loss and incurred loss amounts. 42
Experience Ra:ng - Expenses Excluded From Losses v Expenses include: Fees of arorneys (other than claimant arorney fees) for legal services, whether by outside vendors or staff representa:ves. Experience Ra:ng - Expenses Excluded From Losses v Expenses Include: Bill- audi:ng expenses for: Any medical or voca:onal services rendered, Nursing home bills, 43
Experience Ra:ng - Expenses Excluded From Losses v Expenses include: Bill- audi:ng expenses for: Medical equipment charges, Pharmacy charges, Experience Ra:ng - Expenses Excluded From Losses v Expenses include: Bill- audi:ng expenses for: Physical therapy bills 44
Experience Ra:ng - Expenses Excluded From Losses Expenses include: Hospital and other treatment u:liza:on reviews, Experience Ra:ng - Expenses Excluded From Losses Expenses include: Recer:fica:on/preadmission, and 45
Experience Ra:ng - Expenses Excluded From Losses v Expenses include: Concurrent or retrospec:ve reviews. Experience Ra:ng - Expenses Excluded From Losses Expenses include: Preferred provider network/organiza:on expenses, 46
Experience Ra:ng - Expenses Excluded From Losses v Expenses include: Medical fee review panel expenses. Classifica:ons and Experience Ra:ng Issues 47
Wrap- Up Projects Wrap- Up Projects v Premium Audits Designated Workplace Exclusion Endorsement (WC 00 03 02) should be arached to exclude the wrap- up project from coverage on those other policies. 48
Wrap- Up Projects Payroll and loss experience developed for wrap- up projects is used in future experience ra:ng modifica:ons of the par:cipa:ng en::es. Florida Extraterritorial Ra:ng Procedure 49
Florida Extraterritorial Ra:ng v Florida has filed and approved rules to address Extraterritorial Ra:ng and Coverage A Dose of PEOs 50
What is a PEO? According to. 51
PEO Value Proposi:on PEO clients focus on their core competencies to maintain and grow their borom line. PEO Value Proposi:on PEOs enable clients to cost- effec:vely outsource: Payroll Employee Benefits Workers Compensa:on Human Resources 52
PEO Stats PEO Stats Approximately 700-900 PEOs are opera:ng in 50 states 53
How Does It Work Co Employer PEO Employer How Does It Work Mutual responsibili:es determined by a contract 54
How Does It Work Typically payroll is under the PEO s Federal Employer Iden:fica:on Number (FEIN) How Does It Work In Florida, an employer can avoid a high WC Experience Modifica:on or State Unemployment Rate 55
The PEO Sale Typical Proposal Compara:ve Leasing Rate Components Your Cost Our Cost (Employer) (PEO) PAYROLL TAXES (rates per $100 of payroll) FICA* (Social Security & Medicare) 7.65% Included FUTA* (Federal Unemployment Tax) 0.80% Included SUTA* (Your State Unemployment Rate) 1.00% Included WORKERS' COMPENSATION NET RATES 8380 - Auto Service & Repair 4.50% Included 8748 - Auto Sales 1.00% Included 8810 - Clerical 0.30% Included ADMINISTRATION FEE 7.00% 4.00% Total % By W.C. Code Bundled Rate Bundled Rate 8380 - Auto Service & Repair $120.95 $116.45 8748 - Auto Sales $117.45 $114.00 8810 - Clerical $116.75 $113.75 The PEO Sale Typical Proposal Code Payroll Your Cost Total 8380 $2,000,000 $120.95 $2,419,000 8748 $1,000.000 $117.45 $1,174,500 8810 $1,000,000 $116.75 $1,167,500 Total $4,000,000 $4,761,000 Code Payroll Our Cost Total 8380 $2,000,000 $116.45 $2,329,000 8748 $1,000.000 $114.00 $1,140,000 8810 $1,000,000 $113.75 $1,137,500 Total $4,000,000 $4,606,500 PEO Savings $154,000 56
Not so fast my friend Adjust to Real Life Excluded Remunera:on Fees based on total payroll, not adjusted payroll Officers/ Owners Exclusions may not be allowed Limita:ons may not be applied Sec:on 125 Likely not adjusted Increased tax costs 57
Adjus:ng to Real Life State and Federal Unemployment Taxes (SUTA, FUTA) Bundled Rate may not be adjusted ager caps are exceeded Duplica:on of Taxes Entering a PEO can cause duplicate payment of SUTA and FUTA Administra:on Fees are an Expense, Not Savings Mul:ply the Administra:on Fee % by the total payroll ($4,000,000 X 4% = $160,000) Go shopping 58
Employer Assumes Liability for Injuries to v Employer Assumes Liability for injuries to: Non- leased worker, Employees not yet approved by the PEO, and Uninsured sub- contractors, etc. Employer Assumes Liability for Injuries to: Employer Assumes Liability for Injuries by Statute Employer is Responsible for Injuries to non- leased employees PEO Excludes Coverage Under Contract 59
Florida Workers Compensa:on Joint Underwri:ng Associa:on, Inc. and PEOs Florida Workers Compensa:on Joint Underwri:ng Associa:on, Inc. and PEOs Regardless of whether an employee leasing company provides workers compensa:on insurance for the employees you lease, the FWCJUA will include the leased employees payroll in determining your premium. 60
Florida Workers Compensa:on Joint Underwri:ng Associa:on, Inc. and PEOs You will be obligated to pay the FWCJUA any addi:onal premium resul:ng from the inclusion of the leased employees payroll in the determina:on of your premium. 61
Exit Strategy What happens if an employer wants to leave the PEO rela:onship? Exit Strategy What will their State Unemployment Tax be when they leave? 62
Exit Strategy How about the Experience Mod? Exit Strategy Will employers be able to get loss runs so they can purchase insurance? 63
Insolvency 64
Insolvency If the PEO goes insolvent, who is responsible for all unpaid workers compensa:on claims and unpaid payroll taxes? Actual PEO Contract Excerpts 65
Actual PEO Contract Excerpts You expressly agree and understand that no employee shall become employed by us as a Leased Employee, covered by our workers compensa0on insurance or any other benefit Actual Contract Excerpts unless the individual has, prior to commencing work for us, completed our employment applica0on, W- 4 withholding form, and form I- 9, all of which must be delivered to us before the employee commences employment. 66
Actual Contract Excerpts You assume full responsibility for workers compensa0on claims of other Par0es hired by or working for you, whether as an independent contractor, or in any other status. Actual Contract Excerpts If for other reason we reasonably feel insecure about receiving payment from you, we may, in our sole discre0on, immediately terminate the Leased Employees on the date of no0ce to them. 67
Ques:ons and Recap 68