14 Work Comp Audit Questions, Answered! | Part 1

A work comp audit is the examination of a policyholder financial and payroll records after the expiration of a policy. This process is done to determine the accuracy of the estimated premium when the policy was started. The number one way to fly through an audit is to be prepared!

You should always connect with your independent insurance agent to discuss all questions you have before the audit is conducted.

Here are the first 7 of the most common workers comp audit questions, answered!

 

Q1: Why am I being audited?

A: Audits are routinely conducted to verify the operations of the insured and to update policy information such as changes in operations, business locations, and new ownership. Audits are conducted to determine correct premium, and to confirm information used for calculating rates. Premium, experience modification, and classification rates are affected by the results of an audit.

 

Q2: What if I have questions regarding my workers’ compensation classifications?

A: The audit is an excellent opportunity to review and confirm proper classifications for the policy. The auditor will speak with the person who is best able to answer questions regarding your operations. It is not recommended that you refer the auditor to your bookkeeper or CPA to finalize the audit.

 

Q3: What records will I be asked to provide for the audit?

A: In general, you will be asked to provide State Quarterly Wage and Withholding Reports (DE 6s), payroll journals, and the payroll reports for the period being audited.

Since the information needed for each audit may differ, you may also be asked to provide other records that relate to your workers’ compensation policy. Examples may include payroll registers, time books, time cards, individual earnings records, check registers, check stubs, check books, cash disbursement journal, cash book, petty cash book, general or subsidiary ledgers, job cost records, confidential records, bonus ledgers, commission ledgers, profit sharing reports, 941s, W-2s, W-3s, 1096s, 1099s-Misc., 540, 1040 Schedule C, certified payroll, prevailing wage determination sheets, etc.

 

Q4: What type of wages and benefits are subject to premium?

Subject to Premium:

A: Premium calculations are based on gross payroll, not net payroll. Gross wages include salaries, commissions, bonuses, vacation, holiday pay, sick pay, overtime base wages, the market value of gifts, all substitutes for money earned or paid during the policy period including meals and lodging in lieu of wages, automobile allowances, and some pension play payments explained below.

Not Subject to Premium:

A: Payroll for officers specifically properly excluded from coverage under the policy, overtime excess (explained later), tips, severance pay, the value of an automobile furnished to an employee, reimbursement for expenses with receipts, and salary reductions to fund the welfare or fringe benefit portion of a Section 125 cafeteria plan.

  • Retirement/Pension Plans-Subject to Premium:
    Any amount by which an employee’s salary is reduced to fund a pension or deferred compensation plan.
  • Retirement/Pension Plans-Not Subject to Premium:
    Employer contributory payments including group insurance, stock purchase plans and qualified retirement plans. The exercise of stock options and withdrawals from deferred compensation plans are also not subject to premium computation.
  • What if I pay my employees in cash?
    If you pay your employees in cash instead of by payroll checks, you must keep a log of the cash payments, the hours worked, the date paid, the amount paid, and the first and last name of the employee. Otherwise, all cash withdrawals on your check register will be included in computing workers’ compensation premium.

 

Q5: Which employees qualify as clerical (code 8810)?

A: The use of this classification is subject to specific restrictions. The clerical employees must be physically separated from all the other working areas and their duties must be confined to general office work. Payroll division with any other class is prohibited.

 

Q6: Which employees qualify as outside sales (code 8742)?

A: Outside sales employees may be engaged in solicitation, collection activities or meeting with clients outside the office. The balance of their time can be spent in the office performing clerical duties. If they have duties of any other nature, they would be classified accordingly. Payroll division with any other class is prohibited.

The auditor will ask for the names, job titles, and payroll for clerical and outside sales employees. Having this information available before the auditor arrives will save time.

 

Q7: How do I report the earnings of our corporate officers, partners, or managing members of limited liability companies?

A: Unless specifically properly excluded by endorsement, officers, partners, or member managers are covered for workers’ compensation benefits. Payroll is reported subject to a minimum and maximum for each person. 

Those covered must be reported in the classification that best describes their job duties. They cannot be reported as clerical or outside sales unless their duties are confined to the work described in these classes. If they directly supervise any employee, they must be reported in the classification supervised.

Be sure to notify your independent insurance agency immediately of any changes in ownership.

 

If you would like to discuss any aspect that affects your Workers Comp coverage and premium, here are 4 easy ways to reach us:
Phone: 877-994-6787
Text: 951-482-8144
Email: info@correctcomp.com
Web: www.correctcomp.com

Here are some kind words from a business that trusts Stromsoe Insurance Agency:
“I’ve been with Stromsoe Insurance For over 15 Years. Their Murrieta Office was actually my first Project after I got my license. I refuse to go anywhere else! They shop all my policies to save me money and i can talk to everyone with one phone call! I recently Moved to Arizona, and Started a new Company. Stromsoe was able to get me going and again has all my policies! Thx Guys!”
Mike Hughes – Semper Fi Plumbing, Inc. – Surprise, AZ – Client Since 2007

The CorrectComp system is a division of Stromsoe Insurance Agency

State Fund Announces Two Separate Funds to Assist California Workers and Businesses

The California State Compensation Fund announced two separate funds to assist California workers and businesses during the COVID-19 crisis.  The Essential Business Support Fund and the Essential Worker Support Fund are funds available through State Fund to help California businesses and workers.

The State Fund Essential Business Support Fund, a $25-million fund designed to assist our policyholders who are operating as essential businesses during this unprecedented time.

The fund provides grants to qualified policyholders to help defray the cost of safety-related expenses, planned or already incurred, related to protecting their employees from COVID-19.

State Fund policyholders who are operating an essential business may be eligible to apply for this grant. The full list of qualifications, rules and requirements is available here.

Policyholders can apply by completing this application and returning it to covidsafetyfund@scif.com as soon as possible.

 

How To Prepare For Your Insurance Premium Audit

 

An audit of one or more of your business insurance policies is one situation that requires your early and immediate attention.

The scenario with every insurance provider is different. The scenario will be something like this: Your insurance carrier will contact you. They want to conduct a premium audit. You’ve already paid your premiums for the year. Most policies are based on the best estimate of information you can provide at the time your policy is issued or renewed, but that information could change over the course of the policy year. You may end up not paying enough or paying too much for your insurance based on your actual payroll or gross sales or change in business operations.

This is where a premium audit process comes in. Your insurance company will conduct a premium audit after your policy term expires, review your actual business operations, and calculate your final premium. Depending on the size of your operation, an auditor may be able to gather the information they need over the phone, electronically, you may be asked to fill out and return a simple form online or through the mail. For some or larger operations, an auditor may prefer to visit your office and review your records with you. This may take an hour or two of your time depending on the type of business and whether or not there have been changes in your business operations.

The auditor will let you know prior to your appointment exactly what information they will need to review. Having all the requested information ready prior to the meeting will shorten the process. They may ask to review accounting records including payroll, journals, disbursements, invoice reports, sales reports, vendor reports, general ledgers, social security reports, state unemployment forms, or other tax reports. You may also be asked for information about the business entity, ownership, corporate structure, and the business operation. It’s also important to understand any excluded persons from a policy prior to the audit.

Since an audit can encompass such a vast array of data, here are some tips for preparing:

  1. First decide which staff member is best able to work with the auditor. We do not always recommend referring the auditor to a bookkeeper or CPA. No one cares about your business like you do. This should be someone familiar with the work done by all departments and employees and is knowledgeable about the records needed to complete the audit.
  2. Review the appointment letter and prior year’s audit billing statements to familiarize yourself with the data the auditor will be reviewing.
  3. Gather all pertinent accounting records.
  4. Review payroll documents to make sure that they include breakdowns of wages by employee, department, and class code. Breakdowns should also include overtime pay and tips if applicable.
  5. Verify that you have certificates of insurance on file for any subcontractors you may have used. Be sure that the documents show that the subcontractors have their own current workers’ compensation and general liability insurance.
  6. Lastly, ask questions during the audit to clarify anything you do not understand.

Maintaining detailed payroll and sales records for the policy period is the best way to ensure that the audit process goes smoothly. If those records are organized, the audit can be completed with minimal effort. Don’t let a premium audit be a complicated process.

Our goal as your independent insurance agency of choice is to bring awareness and guidance to most situations that may occur with your insurance program. If you have questions regarding the premium audit process and need our assistance before, during or after the audit process, please us know.

Here’s 3 easy ways to reach us:

  1. Call 951-600-5751
  2. Text 951-482-8144
  3. Email insure@siaonline.com

We appreciate this and every opportunity to serve and protect you!

How to Avoid Costly Mistakes on Your Workers Comp Audit

Don’t make these costly mistakes with your workers comp coverage.

When you operate a business, it’s normal to have your coverage audited from time to time.  However, should a routine audit uncover issues or inconsistencies with your employee codes or payroll, then you might be in for an expensive rate increase.  To ensure this doesn’t happen to you, here are some of the steps that you should take.

  • Prevent Code Misclassification

During an audit, many business owners discover that they have been underpaying (or in some cases, overpaying) on their insurance premiums.  Generally, employee code misclassification is at the root of this issue.  Code classifications play a major role in how a business’s workers compensation insurance premiums are calculated.  Unfortunately, with 700 codes to choose from, many business owners struggle to apply the right codes to coincide with their business and their employees’ functions.

  • Avoid Inconsistent Payroll Reporting

Workers compensation premiums are also based on a business’s payroll information.  However, when a business fails to report payroll information to their insurer, issues can arise.  Sometimes inconsistent reporting conceals the hiring or release of employees.  When payroll information is inaccurate or not up-to-date, it makes it impossible for insurers to gauge a business’s true risk and adjust its coverage and premiums accordingly.  If an auditor discovers payroll inconsistencies, then this can result in major workers compensation insurance rate adjustments.

These are some of the steps that you should take to ensure that a workers compensation audit does not result in higher rates.    Want further help with your commercial coverage?  Make sure you have the right business insurance protection at the best price by giving our knowledgeable Total Protection Team a call at 951-600-5751, sending an email to insure@siaonline.com, or stopping by our Murrieta, California office today.  We are always happy to help!

How You Can Spot a Fake Workers Compensation Claim

Watch out for these signs of a fraudulent workers compensation insurance claim.

While you always want to give your employees the benefit of the doubt, sometimes they are just criminals in disguise. According to the National Insurance Crime Bureau, workers compensation fraud costs the system approximately $30 billion on an annual basis. With workers compensation fraud such a widespread problem, it’s important to keep an eye out for a fake claim at your place of business. Here are some of the signs you should watch out for.

Inconsistencies in the Employee’s Story

If your employee’s account of the story keeps changing or if their account does not fit the evidence gathered at the scene, this is a clear sign of dishonesty.

A Lack of Witnesses

While it’s possible that the employee was simply alone at the time of the incident, if the employee normally works around others, you may want to investigate their story a little more closely if no one witnessed the accident.

The Involvement of a Problematic Employee

If the employee has expressed their dissatisfaction with the company or had performance or behavioral issues in the past, they may have submitted a claim as a way of getting back at the company. Make sure you investigate the employee’s account very carefully for any inconsistencies.

An Unwillingness to Cooperate

Sustaining an injury at work is a scary experience, but if the employee is being particularly unresponsive or difficult, then it’s possible that they are hiding something. Refusing to undergo diagnostic tests or not responding to communication efforts should raise a red flag for you.

These are some of the signs of workers compensation insurance fraud that you need to look out for. Do you have further questions regarding your workers compensation or other commercial insurance needs? If so, contact the experts at Stromsoe Insurance Agency in Murrieta, California. Our dedicated team is ready to assist you today.

The Basics of Workers’ Compensation

Understanding the basic coverage of workers’ compensation insurance.

If you’re a business owner, you may be overwhelmed with the insurance policies you need. From protecting your business’s property to safeguarding your employees, everything should be covered so that you can focus on building your company. An insurance coverage that is non-negotiable is workers’ compensation. The law requires employers to have this coverage even if they have only one employee. Out-of-state employers may need workers’ compensation coverage if an employee is regularly employed, or if a contract of employment is entered.

Workers’ Compensation 101

If an employee gets hurt on the job, the employer is required by law to pay for workers’ compensation benefits. Whether a member of staff is injured in a single event (such as slipping and falling on a wet floor or getting into an auto accident while making deliveries) or repeated exposure to repetitive-motion injuries at work, the employer can be held responsible. 

Employee Protection

A workers’ compensation insurance policy is part of your cost of doing business, so no employee has to pay for the policy. As a business owner, you must post the notice to employees poster at work where employees will be able to see it. This notice details information about workers’ compensation coverage and where to find medical care for work injuries.

Fall Into Your Safety Net

If your employees get sick or hurt on the job, you may need to follow this standard procedure:

  • Provide a workers’ compensation claim for them within one working day after the work-related injury or illness is reported.
  • Return a copy of the completed form to the employee within one working day of receipt.
  • Forward the claim form and your report of occupational injury or illness to the claims administrator within one working day.
  • Within one working day of receiving the employee’s claim, authorize up to $10,000 for appropriate medical treatment.
  • Provide transitional work that is light duty whenever necessary to keep the injured employee in the loop.
  • If the employee is the victim of a crime that happened at work, you must give notice of workers’ compensation eligibility within one working day of the crime.

To prevent your employees from getting hurt at work, be sure to follow proper safety procedures and supply them with any safety tools or education. In addition to protecting your employees, safeguard your business with reliable workers’ compensation insurance. Contact our knowledgeable team at Stromsoe Insurance Agency for all of your personal and business insurance coverage needs.

Workers’ Compensation Savings For Small Businesses

How To: Save On Your Workers’ Compensation

As a business owner, you know that workers’ compensation is important. Not only does it protect your workforce—ensuring they get the medical care and lost wages reimbursements they need to maintain their quality of life—but it is also crucial for your business. This coverage helps you take care of your team without compromising your bottom line.

That does not mean you want to pay a pricey premium, though. Here is a quick guide on how to save on your workers’ compensation.

  • Get Grouped: Group rates can help you get significant savings on your workers’ comp coverage. If your business is not large enough to qualify for this type of coverage on its own, consider joining a trade association with at least 300 members or asking a couple of other businesses with similar risks to join with you in securing coverage.
  • Support Safety: California requires you to have a written safety program. Why not show it to your insurer—along with documentation about your regular safety trainings—to let them know how much you prioritize safeguarding your staff. Informing your insurer that you are making strides towards minimizing workplace accidents can help you save.
  • Prepare Programs: Certain programs—like a substance-free workplace program or return-to-work program—can help your employees minimize injury times and injuries themselves. By implementing these types of programs to help your workforce stay safe on the jobsite and protect their health if an injury does occur, you can show your insurer you are actively reducing your risk and their costs, which should lower your premiums.

Want to talk to an insurance expert about how to keep your workers’ compensation as affordable as possible? Contact Stromsoe Insurance Agency today! As California business insurance experts, our dedicated team is standing ready to help you get the best workers’ comp at the best price.

What is a “Separation of Insureds” Clause?

Did you know when signing a contract to do business with another entity, you are agreeing to add them as an insured under your Liability insurance? Several months later, an accident may arise from the contracted job, and the other party sues you for damages. Can you file a claim for this suit under the policy that covers both of you? If so, isn’t this like the party suing itself, because the same policy that covers them as an insured is the one under which they’re now attempting to collect damages?

The answer to the first question is “yes, you can file that claim.” A standard Liability policy will cover a suit by one of its insureds against another unless there’s a specific endorsement prohibiting such coverage. Under such a “separation of insureds” clause, all policy provisions apply “separately to each insured against whom a claim is made or suit is brought.” So, from the policy perspective, the key issue is whether an insured is being sued — not who’s bringing the suit. As with any other claim, whether the policy pays for the damages will depend on a determination of liability and applicable coverage limitations and exclusions.

Although the insured party is attempting to collect under a policy that covers them, legally they aren’t suing themselves, but another insured; and the “separation of insureds” clause allows coverage for such situations.

Protection for “insured vs. insured” claims provides a valuable benefit under your liability coverage. However, bear in mind that any damages for such claims will drain your coverage limits. So, be careful about which and how many additional insureds you allow to be covered by — and yet still sue you and collect under — the policy you purchased just to protect yourself!

If you’d like more information, please feel free to get in touch with our Business insurance professionals. We’re here to serve you. 877-994-6787

7 Tips on Classifying Workers as Employees vs. Independent Contractors

Small business owners can hire individuals as either employees or independent contractors. Which classification a hired individual falls under is often a confusing process for business owners, but it’s this critical classification that affects what tax documents must be filed; how much you, the business owner, pays in taxes; as well as whether or not you should be withholding from a particular worker’s paycheck or not.

If you own a business and hire people, then you should keep these seven points in mind as you go about hiring workers as either employees or independent contractors:

  1. If you, as an employer, intentionally or otherwise misclassified your workers, then you could suffer significant tax bills and be facing hefty penalties for not filing the appropriate tax forms and not paying employment taxes.
  2. You should know and understand how the Internal Revenue Service (IRS) determines the relationship between a worker and a business. The IRS uses the following three factors in determining this relationship:
    • Type of relationship, which means how both your business and the worker views the relationship.
    • Financial control, which refers to whether or not your business can control or direct the business and monetary aspects of the worker’s job.
    • Behavioral control, which refers to whether or not your business can control or direct how work is done through means like training or instruction.
  3. IRS Form SS-8, which is labeled as the Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, can be filed by employers and/or workers. This form essentially asks the IRS to determine if a specific worker’s status should be classified as an employee or as an independent contractor. IRS form SS-8 can be obtained online at IRS.gov or by calling 1-800-829-3676.
  4. Generally speaking, a worker should most likely be classified as an employee if the employer can direct or control what is being done and how it’s done.
  5. Generally speaking, a worker should most likely be classified as an independent contractor if the employer only directs or controls the result of the work, and not the manner, means, or methods being used to accomplish the end result.
  6. Do ensure that workers are aware of their classification, or worker status. This will not only help them avoid higher tax bills, but also avoid losing any valuable benefits.
  7. Check out the small business tab on the IRS.gov website and IRS publications 15-A, 1779, and 1976 to find out more about determining a worker’s status as either an employee or as an independent contractor.

We hope this article helps. If you have any questions, comments or concerns, please feel free to contact one of our knowledgeable protection coaches today at 877-994-6787, that’s 877-99-INSURE or email us at insure@siaonline.com. We are happy to help!

From Our Family to Yours-Happy 4th of July!

From our family to yours, we wish each of you a safe and happy 4th of July holiday weekend.

In speaking to many people, typical celebrations will include parades, fireworks, ceremonies, barbecues, family gatherings, attendance at theatre events, concerts and even weddings!

We’d love to hear what you are doing, if you have a moment, please scroll down, click comment and let us know 🙂

Wishing you and your all the best,

The Stromsoe Insurance Agency Total Protection Team

PS Here’s a little 4th of July history –  “Independence Day, commonly known as July 4th or the Fourth of July, commemorates the Continental Congress’ adoption of the Declaration of Independence on July 4, 1776. The document, primarily written by Thomas Jefferson, served as a formal announcement that the 13 American colonies were no longer part of the British Empire and would henceforth be free and independent states. Regarded as the birthday of the United States of America.