By Joe Elmore, Smith-Peabody-Stiles and Dennis Partridge, Garan, Lucow and Miller Law Firm
Audits and Refunds; part of the way it works
A workers’ compensation insurance policy, like all other insurance, is a legal contract. The policyholder agrees to pay a certain amount of money each year, and the insurance company is required to adhere to the provisions stated in the policy. As with any legal contract, an insurance policy must be maintained. The ongoing requirement of a workers’ compensation policy is the audit.
An initial premium is based on a company’s own estimates of its payroll and job classifications. The audit compares those estimates against the actual payroll and job classification figures for the year the policy was in force. Any difference between estimates and actual payroll figures is reflected in the adjusted premium.
Audits are done as soon as possible after coverage is concluded or after the job policy is renewed. Since premium costs are based partly on a company’s job classifications, the auditor also reviews your business to be certain the workers’ compensation premium being charged is accurate.
The Process
Your Apartment Association workers compensation policy requires an annual audit of your records in order to compute your actual earned premium. You will need the following information:
Payroll Information: This will include all the payroll records for the policy year. These records should include the following: gross payroll, by employee, total overtime paid (if any), the employee’s job duties, and rental values if the employee is provided with an apartment.
Payroll verification records: This can be the four quarterly reports for the policy year such as your 941’s (Federal Tax Forms) or your MESC reports (State unemployment reports). You can also provide the Annual 940 report if the audit is for the calendar year. This information assures you and the auditor that the correct payroll figures have been used.
Additionally, you will need Records of payment to casual and subcontract labor and their certificates of workers compensation insurance.
Know Your Rights
The following information is excerpted from the Michigan Notice to Policyholders, a notice that appears as the last page of your policy as required by Michigan law. Please review the actual notice for further information.
You may request a payroll audit once each calendar year. Your request must be in writing to the carrier. You must state that you believe your payroll expenditures have changed by 20 percent or more, and you must state the reasons for that belief. The carrier will complete the audit within 120 days or receipt of your request if you provide all the information needed to perform the audit.
You may request reserve and redemption information that relates to the premium for this policy. Your request must be in writing to the carrier, and they must provide you with that information within 30 days of receipt of your request. If you believe the premiums are excessive because of unreasonable reserves or the unreasonable redemption of a claim, you may submit a written request for a meeting.
Insurance companies can reserve a portion of a client’s premium to cover the projected cost of paying for claims against a specific client. These reserves may be held for:
• Claims that have been made but not yet “closed.”
• The cost of injuries or illnesses that have occurred but have not yet had claims filed.
You may also submit a written request for a review of the method by which the carrier’s rates and premiums are determined. If you are not satisfied with the results of your review, you may appeal to the Commissioner of Insurance.
An insurance company must make payments it owes in a “timely” manner – generally on or before the date specified in the policy or, if no date is specified, within 60 days after the policy expires. It must pay a 12 percent per annum simple interest penalty on any late payments. Specifically, dividend payments must be made within 60 days of the policy’s expiration; premium refunds resulting from payroll audits are due within 60 days of the audit’s completion; and premium refunds resulting from a retrospective rating plan are due within nine months of the policy’s expiration.
Agents can provide information on how to request an audit, a meeting with management or information on premium factors.
Smith-Peabody-Stiles supports efforts to make the workplace a safer and more productive environment. For concerns or questions about safety issues contact Wendy Light or Jim Peabody at SPS, 1-800-467-6645. We welcome your calls and inquiries.