Tag Archives: Audit

the officer minimum

The insurance audit…

Rarely do we hear great stories about insurance audits. Seems policyholders often find some unpleasant rules post audit. One of them is the officer minimum payroll. As insurance brokers or agents, of course we tend to think it’s a good practice to INCLUDE yourself on the WC policy for a host of reasons. After all, you know the rate, so it should be relatively easy calculate the total cost to include yourself or your ownership team in coverage.

But…

Then comes the audit. It’s only your first year in business and the agent persuaded you take the safe road and include yourself in coverage. After all, maybe you don’t have a health plan, you are actively working in the field, it’s the right call. You had anticipated paying yourself a modest income during the first few years of business if you could afford it, but really the first six months, it’s all hustle and no compensation to yourself. Of course, the goal is to make more, but step one is making the business profitable above all else. Your first 12 months are in the books and you only paid yourself $21,000.

The WC rate was $2.20.

$2.20 times your salary (WC rates are charged per $100 in payroll) gives you a final estimated premium for yourself of $462.

The audit bill comes in with an additional premium of $1,544.40 for JUST YOU as a single owner. What gives? You request the audit worksheets and the auditor shows your paryoll as $70,200!

Welcome to the officer minimum.

That’s right. There’s a minimum payroll in almost every state for Workers’ Compensation coverage for sole proprietors, corporate officers, LLC members, and partnerships. These minimums have gone up considerably in many states across the country. Again, what you don’t know can hurt you and throw your insurance premiums estimates out the window! To compound the pain, audits typically occur just after the policy renewal which may have had some hefty down payments.

See the table below for the breakdown. Take note, many states increase these figures annually! Know the details BEFORE it’s time for the audit, unless of course you don’t mind the additional premium surprises.

STATEOFFICER MINOFFICER MAXPARTNER MAXPOLICY EFF. AFTER
Alabama54,600213,20053,400 Flat3/1/2023
Alaska31,200119,60038,800 Flat1/1/2023
Arizona *******62,400249,60061,933 Max1/1/2023
Arkansas52,000202,80051,100 Flat7/1/2023
Californiaw57,200149,500149,500 Max9/1/2022
Colorado70,200 Flat70,200 Flat70,200 Flat1/1/2023
Connecticut78,000156,00078,500 Flat1/1/2023
Delaware ******64,168257,400257,400 Max12/1/2022
District of Columbia85,800338,00084,800 Flat11/1/2022
Florida*57,200171,60057,100 Flat1/1/2023
Georgia62,400254,80063,200 Flat3/1/2023
Hawaii52,000208,00051,600 Flat1/1/2023
Idaho46,800187,20023,600 Flat1/1/2023
Illinois67,600270,40067,700 Flat1/1/2023
Indiana46,800223,600223,600 Max1/1/2023
Iowa26,000218,400218,400 Max1/1/2023
Kansas52,000213,20053,000 Flat1/1/2023
Kentucky52,000202,80050,800 Flat1/1/2023
Louisiana54,600161,20053,400 Flat5/1/2023
Maine54,600213,20053,900 Flat4/1/2023
Maryland70,200280,80069,600 Flat1/1/2023
Massachusetts14,56073,32064,300 Max10/1/2022
Michigan30,264119,60023,900 Flat1/1/2023
Minnesota66,924267,696267,696 Max1/1/2023
Mississippi44,200145,60043,000 Flat3/1/2023
Missouri51,700 Flat51,700 Flat51,700 Flat1/1/2023
Montana*****10,40075,92075,920 Max7/1/2023
Nebraska52,000202,80051,100 Flat2/1/2023
Nevada **6,00036,0003,600 Flat1/7/1999
New Hampshire ****36,400286,00035,900 Flat1/1/2023
New Jersey41,080163,800163,800 Max1/1/2023
New Mexico52,000202,80051,300 Flat1/1/2023
New York *45,500135,200135,200 Max10/1/2022
North Carolina57,200114,40055,900 Flat4/1/2023
Oklahoma49,400197,60049,600 Flat1/1/2023
Oregon70,200275,60068,900 Flat1/1/2023
Pennsylvania******62,660156,000156,000 Max4/1/2023
Rhode Island59,800239,200Not Applicable8/1/2022
South Carolina26,000202,80050,100 Flat4/1/2023
South Dakota49,400192,40048,600 Flat7/1/2002
Tennessee ***57,200234,00058,300 Flat3/1/2023
Texas7,80062,40072,300 Flat7/1/2023
Utah59,800234,00058,800 Flat1/1/2023
Vermont28,600223,60027,800 Flat4/1/2023
Virginia33,800135,20067,100 Flat4/1/2023
West Virginia49,400197,60049,800 Flat11/1/2022
Wisconsin18,09690,42860,268 Flat10/1/2022

* FL Construction MIN 28,600; NY Construction codes MAX: 87,786. ** NV Sole proprietor or partner electing higher benefits: $21,600. *** TN Construction codes MIN $28,600; MAX $85,800. **** NH Officers of unincorporated assoc. MIN 18,200, MAX 145,600. *****MT Individual & Partner MIN $10,800 ****** DE for Individuals or Partners not on payroll MIN $64,170.08; PA for Individuals or Partners not on payroll MIN $66,196. ******* AZ Individual & Partner Min $7,200
State requires a signed waiver for officers to be excluded from coverage.

WC Premiums and “Idle Time”

Wages paid to employees not actively working is nothing new. So how are wages handled for WC premiums if the employees aren’t actually working? Despite what many of us might think, determining what payrolls to charge for is not entirely to the carriers or auditors. This is actually up to the regulatory bodies in each state. For example, the Pennsylvania Compensation Rating Bureau specifically addresses “Idle Time” in their workers’ compensation manual.

PENNSYLVANIA WORKERS COMPENSATION MANUAL SECTION 1 UNDERWRITING RULES EFFECTIVE DATE: APRIL 1, 2015 Page 24

Wages Paid for Idle Time a. The entire amount of wages paid for idle time shall be included as payroll. b. Wages paid for idle time due to the following causes shall be assigned in their entirety to the classification which applies to the work normally performed by the employee involved: 1. Suspension or delay of work on account of weather conditions. 2. Delays while waiting for materials. 3. Delays while waiting for another contractor to complete certain work. 4. Delays arising from breakdown of equipment. 5. “Stand-by” time where employees such as operators of cranes, hoists or other equipment are on the job but their active services are not required continuously. 6. Special union requirements or agreements between employer and employees calling for pay for idle time under specified circumstances. 7. Other cause of similar nature. c. Wages paid to key employees of construction, erection or stevedoring risks, such as superintendents, foremen or engineers, for periods during which no jobs are in progress, shall be assigned to the classification applicable to the work which each one normally performs. (Exception: Reference Strike Periods – Wages Paid.) d. The entire amount of wages paid for idle time to an employee engaged in work other than construction, erection or stevedoring must be assigned without division to the classification which normally applied to that employee.

OK, with that being said, what presumably wasn’t expected when this was written was what we’re seeing today with COVID-19 and the federal assistance that has come with it. Fast forward to today and your company has just received a PPP Loan- Congratulations, let’s hope we can keep our businesses alive until things get back to normal… One of the keys to the PPP loan is to use at least 75% of the loan for payroll, even if the employees aren’t actively working. Well regardless of what type of company you have or the rate for your WC, your most likely hoping to NOT pay WC premiums on wages made to employees not actually working… I don’t blame you. So you talk to your carrier, broker, or an auditor to get the answer. Depending where you are or when you asked you may not like what you hear.

As a result, regulatory bodies are working hard to find a solution for this new type of wage payment.

NCCI recognizes that the circumstances around COVID-19 were extraordinary and, as a result, submitted an expedited rule change (Item Filing B-1441) to address the question of payroll for employees who are being paid but are not working as it relates to the basis of premium. Upon approval, this rule change will be distinct from “idle time” under our current Basic Manual rules (Rule 2-F-1), and a corresponding code 0012 will be created for reporting these payments. These payments will not be used in the calculation of premium.

The details of the rule changes proposed in Item Filing B-1441 were submitted to state regulators in all NCCI states.

https://www.ncci.com/Articles/Pages/Insights-Coronavirus-FAQs.aspx

Let’s start with the good news. Most states in the US have already approved a new classification code for payroll to be allocated for employees not working as a result of COVID-19 but still getting paid.

Disclaimer: This is an ever changing situation. Information is recorded as accurately as possible at the time posted. The information will continue to change and we’ll do our best to update accordingly. For the most accurate information check with your state rating bureau or commission.

Payroll during COVID-19 Code 0012 is approved in the following states as of May 4, 2020.

Alabama

Arkansas

Arizona

Colorado

Connecticut

District of Columbia

Florida

Georgia

Iowa

Idaho

Illinois

Indiana

Kansas

Kentucky

Louisiana

Maryland

Maine

Missouri

Mississippi

Montana

Nebraska

New Hampshire

New Jersey

New Mexico

Nevada

Oklahoma

Ohio Employers are not required to report to BWC the wages paid to employees who are idle at home because of the COVID-19 pandemic. Ohio is not using code 0012.

Pennsylvania – Just approved the exclusion of wages per circular released 5/5/2020. PA doesn’t use the same classification system, code 0012 is not applicable. PCRB CIRCULAR NO. 1740

Rhode Island

South Carolina

South Dakota

Tennessee

Utah

Vermont

West Virginia

Wisconsin

To date (5/4/2020) the following states have not made an exception to the exclude wages paid for employees not working during COVID-19, or the exception just isn’t approved yet:

Alaska

California – The WCIRB is working to determine the scope of any emergency regulatory changes to be proposed to the California Insurance Commissioner. We anticipate completing this time sensitive effort within the next few weeks. Approval is in the works in California- https://www.wcirb.com/content/wcirb-july-1-2020-special-regulatory-filing

Delaware

Hawaii

Massachusetts

Michigan

Minnesota

New York

North Carolina- Pending Approval

Oregon

Texas

Virginia- Pending

Washington

Wyoming

Even if you find yourself in one of the states on the second list, it’s highly recommended you record any payroll made to employees not actively working- OR ANY other payroll abnormalities due to COVID-19. There may be options available come policy audit and it’s easier to have the breakouts done prior to the audit than trying to go back and recreate the records.

Many of the states have legislation pending, even if it’s not found on the commission or bureau site at this time. Track it so if it is approved, you don’t pay WC premiums where you shouldn’t have to!

Audits and your Liability Policy

A common topic of discussion is the workers’ comp audit.   Either through the horror stories of friends or self experience, you’ve heard the terrible tale of the large comp audit.   You’re now keenly tuned in to the payrolls and exposures on your work comp policy vowing never to let this happen to your organization again (or ever)!

Perhaps you’ve even transitioned to a “pay as you go” program to virtually eliminate the chance of an audit bill.

But… and there always seems to be a but.  What about your liability policy?  While you find yourself plugging the holes in one area, don’t forget the GL policy is often  an auditable policy like the WC.   Don’t make the mistake of assuming that since you’ve notified your carrier or broker of accurate payrolls for the workers’ compensation policy, those same updates translated to your liability policy!  You might be surprised to learn otherwise and we already know, that’s rarely a good thing.

Keep track of your liability policy exposures just as you do on the WC!

Big Changes with non-compliant Audits!

Ever thought of not complying with your work comp insurance audit? In years past failure to comply with an audit might have caused an estimated audit with exposures inflated by 50% and some carriers were forgiving enough to process non compliant audits with no additional payroll increases.  With the new changes you may want to reconsider unless you’re ready for a potential 200% increase in exposures!

Does your policy have the endorsement WC 00 04 24?

 

2016-14:  Audit Noncompliance Charge for WC Policies

NCCI has established an Audit Noncompliance Charge Endorsement (WC 00 04 24) that will be included on all new and renewal workers’ compensation policies effective January 1, 2017.  The endorsement enables an insurance carrier to apply an Audit Noncompliance Charge to a workers’ compensation policy if the policyholder does not comply with the annual premium audit of their records.  When attached to policies, the endorsement will include the estimated annual payroll (in the Basis of Audit Noncompliance Charge section) and the annual premium multiplier that may be applied for noncompliance (in the Maximum Audit Noncompliance Charge Multiplier section).