What every employer SHOULD know about workers’ compensation insurance. Part 3 of the 6 part series.
A “how to” guide
My previous article discussed the alarming fact that a large number of organizations have misclassified their employees for workers’ compensation insurance purposes (Workers Comp Misclassifications Can Cost Employers a Fortune). The consequence of misclassification could mean that a company unknowingly paid much more in workers’ compensation premiums than it should. Imagine if you found out that your company overpaid and you might be entitled to a refund? How could you use this “found money”? This article will serve as a practical guide to see if your business has overpaid and deserves a refund due to employee misclassification. How you spend the money is ultimately up to you!
What information is necessary?
The first thing you need to do to perform your self-audit is to collect a lot of documentation. You will need your workers’ compensation statement pages, audit statements, experience rating worksheets, merit rating worksheets, losing streaks, and cumulative totals of premiums paid and attributable to workers’ compensation premiums. Unfortunately, you will need this information for each policy year that is audited. I would recommend auditing at least the previous 5 years of data. If you find irrefutable proof in any of those 5 years, you may want to audit prior years as well. An error may indicate past inaccuracies and may compound the effect of future errors.
How do I know if my classification code is correct?
Once you’ve collected all of this information, your work really begins. What you need to determine is whether or not your organization was classified correctly based on what it actually did during each policy period in question. To facilitate that determination (in Pennsylvania), the Pennsylvania Compensation Rating Bureau (PCRB) has posted a set of Standard Survey Instructions on its website (http://www.pcrb.com/). This 85-page survey starts with some general questions about your organization and then moves on to specifics about your particular industry. For example, if you are wondering if your company is correctly classified as a manufacturer of paper products, the following is a list of industry-specific questions you must answer:
List and provide percentages for raw materials and finished goods.
Does the risk make paper/operate a paper mill?
Provide a step-by-step description of the manufacturing process.
Does the risk provide contract paper services such as cutting, laminating, winding, finishing, laminating, etc.? If yes, please provide a detailed description of these services. List all equipment used in manufacturing and/or processing operations at risk.
As you can see, these are not for the most part “yes” or “no” questions and can take quite a while to answer.
Where do I send the results?
After collecting all of your information, you are now ready to submit it to the PCRB. Neither you nor your insurance company can simply change your code. Your code change request must be approved and processed by the PCRB. There are very specific procedures that must be followed and are available on the PCRB website.
To return to our paper products manufacturing example, suppose the PCRB determines that your company should be classified as a distributor. We will also assume that the distributor class is less expensive. You can then start calculating (using all of your collected worksheets) the amount of your refund. Your insurance company will probably be willing to help you do these calculations, but I would check them anyway. You will also need to determine the number of years your business has been misclassified. Obviously, if you switched from manufacturer to dealer 10 years ago, your rebate could be substantial.
So why aren’t more organizations doing this?
That is a very good question! For one thing, while a business could get a substantial rebate, it can be a big project to handle in-house. There is also no guarantee that any refund will be due. Another reason is that many organizations simply assume that all of their information is correct.
How can I learn more?
If you would like more information on how to determine if your organization has been misclassified, you may contact me using my information below. Our company is fully equipped to help you carry out your own audit or you can outsource the entire project to us.
Are there other places where my insurance provider has miscalculated?
Absolutely! That’s why my next article will be about how to ensure your mod experience is correct. An incorrect mod can also cost you a lot.
