Cost-saving lessons from 2021 Workers' Compensation audits

As Certified WorkComp Advisors (CWCA), we are trained, certified, and mentored by the Institute of WorkComp Professionals (IWCP) to guide employers to the lowest possible workers' comp costs. Kevin Ring, Chief Operations Officer and Lead Workers Comp Analyst of IWCP recently reported on a consequential pattern that is emerging from Workers' Compensation audits across the country. "Auditors are being FAR more aggressive right now than we've seen in the recent past."

This year's audit cycle may be the most challenging employers have ever experienced. Most audits are happening virtually or by phone. This creates a different dynamic from years past when the auditor was at your workplace asking for more information and patiently waiting. There's little opportunity for personal interaction and the auditor has a day chock full of similar appointments, without the breaks that travel between appointments allowed. Further, the industry is bracing for negative premium audit results and while auditors can't do anything about payroll that isn't there, they can look for other ways to maximize your premium.

One area that some auditors are turning a blind eye to is payroll for furloughed employees. The rules are very specific about when payroll for furloughed employees will not be used in the calculation of Workers' Compensation premium. The employer must keep separate, accurate, and verifiable records of this payroll. If separate, accurate, and verifiable records are not maintained, payroll is assigned to the classification for work normally performed by the employee prior to any emergency orders, laws, or regulations issued due to the COVID-19 (coronavirus) pandemic. If the information is not provided in the form required, you cannot rely upon the auditor to ask about it, nor expect it to be excluded.

The auditor, however, will be carefully scrutinizing your classifications, including the governing classification, which generates the most payroll in your audit. This is not only for the obvious situation when a business changed its operation to survive the pandemic but also for employers that may have been misclassified on the low side for years. What IWCP has learned is that employers that are misclassified on the low side, even those who have been with the same company for years, are getting reclassified. In effect, payroll that is being charged an incorrect rate is low hanging fruit to make up for some of the lost payroll.

It's a difficult decision to overturn, but sometimes we can have a proactive conversation with the underwriter who can intervene. However, if the decision stands, it's important to note that the auditor likely cannot add a higher rated code at the time of the audit unless there has been a change in business operations, misrepresentation, or fraud. If the insurance company underwrote the risk at a lower code, a new higher code can only be added to the renewal policy. Agriculture, construction, oil field services, and staffing are exceptions to this rule.

When workers are temporarily reassigned, premiums can be adjusted based on new classifications. The employer is responsible for maintaining properly segregated payroll records for the wages earned while the employees were in their new job descriptions. If these records are not maintained, then all payroll would be assigned to the highest-rated applicable classification. Essentially, this makes the auditor look at payroll week-to-week, which is extremely labor-intensive. If your records aren't clear, don't expect the auditor to do the calculation.

Even before the pandemic, the complexity of workers' comp made the list of possible audit errors and mistakes almost endless. The COVID-19 crisis created a whole new level of complexity making it more likely that even when the employer receives a return premium, money is left on the table. The key to avoiding audit shock is to be thoroughly prepared well before the appointment. This is our expertise, and we are here to help. As trained Certified WorkComp Advisors, we can assist in identifying issues in advance and ensure you pay the lowest premium possible.