When a policy is issued, workers compensation premium is based on estimated exposures. These exposures will vary during the policy period, and an audit is necessary to determine the exact exposures. If your record keeping is maintained properly, an audit assures that you only pay premium for the exposures that actually existed.
In most cases, A.I.M. Mutual premium auditors visit accounts at the expiration of the initial policy period. Visits to your premises or your accountant’s office will be scheduled by appointment. Auditors will examine records containing information necessary to verify the exposures, such as:
- Payroll/Individual Earnings Reports
- Unemployment/FICA Report
- Job Cost Records
- Financial Statements
In some instances, the adjustment information on subsequent policy periods can be obtained by telephone or mail. A premium auditor will, however, visit your premises at least once every three years.
The auditor may inquire about your business operation, employee job functions, company structure and ownership in order to fully understand the nature and extent of your exposures. To ensure proper classification, the auditor may wish to personally observe the processes involved in your operation. Every effort is made to minimize the time involvement of you and/or your employees. Often there are allowable deductions according to insurance classifications, rating procedures, and state rules.
Workers compensation insurance premium is primarily based upon gross payroll, which is defined as total remuneration for services performed by an employee. Total remuneration means money or substitutes for money and includes:
- Wages, Commissions, Bonuses
- Overtime, Holiday, Vacation, and Sick Pay
- 401(k) and Section 125 Employee Contributions
- Income Tax Deferred Pay
- Profit Sharing Plans
- Payment for Piece Work
- Value of Board & Lodging
- Tool Allowances
- Store Certificates
- Other Dollar Substitutes
Total Remuneration Exclusions
- Tips and Other Gratuities
- Payments by an employer to Group Insurance or Group Pension Plans (other than payments for the Federal Social Security Act)
- Value of Special Rewards for individual invention or discovery
- Dismissal or Severance Payments (except for time worked or accrued vacation)
- Sick pay paid to an employee by a third party such as an insured’s group insurance carrier which is paying disability income benefits to a disabled employee
- Employer provided perquisites such as an automobile, airplane flight, incentive vacation (contest winner), discount on property or services, club memberships, tickets to entertainment events, or executive officer remuneration above each states published maximum.
In Massachusetts, New Hampshire and Connecticut as in most states, the premium portion of overtime pay (the amount paid in excess of straight time pay) may be deducted from gross payroll totals. In order to benefit from this provision, overtime must be shown separately be employee and summarized by class of work group.
Division of Payroll
Your policy may carry one or more classifications of payroll based on your operation or business. An in-depth guide for Massachusetts’s classifications is available at the Workers Compensation Rating and Inspection Bureau of Massachusetts website- www.wcribma.org. Select Class Code Lookup or Manuals/MA Master Alphabetical under Products and Services.
Segmentation or division of an individual’s payroll to more than one classification is not permitted. If an employee interchanges between operations subject to more than one classification, the entire payroll of such employee shall be assigned to the highest rated classification representing any part of his/her work. This assignment applies irrespective of the actual time devoted to the classes of work. Exceptions do apply to employees involved with construction or erection operations; your premium auditor will be glad to discuss those exceptions with you.
Hiring of Uninsured Independent Contractors or Sub-Contractor
In Massachusetts, as a “General Employer,” you may potentially be responsible for injures to an employee of an uninsured contractor whom you have hired. This may be particularly applicable if the injury occurs on your premises and the contract is to perform work that may be deemed to be a part of, or a process of, your trade or business. “Premises” may include the public highways if the contract requires or necessitates the use of them.
In certain circumstances, you can reduce your liability for injuries to others working on your premises under contract (written or oral) by securing a current Certificate of Workers Compensation Insurance from each contractor you employ (see Request a Certificate). If Certificates of Workers Compensation Insurance for subcontractors are not available at the time of audit, the subcontractor’s exposure may be included in the pricing of your insurance.
Please contact us for more in-depth management procedures in the use of Certificates of Insurance to limit your premium liability.
All information obtained through the audit process will be used for insurance purposes only. This information will not be made available to others. Our premium auditor will provide you with a copy of the completed audit worksheet and explain the resulting exposures.