Underwriting – Payroll Verification Audit
What is an Audit?
Workers’ compensation premiums are billed on an estimated basis, since neither the insurance carrier nor you can predict with certainty what your payroll will be over a given 12–month period. The payment plans of The State Insurance Fund require that you pay a deposit premium and installment payments based on payroll estimates for the policy year. An audit or verification of payrolls can be conducted either quarterly, semi–annually or annually. The audit will compare the actual payroll developed for the policy period to the estimated payrolls and premium paid to the carrier for that policy period. The result of this verification is an audit bill, which will either be a credit or a charge, depending on the actual payroll developed.
We’re Here to Help
Lovell’s underwriting experts are available to answer your questions and assist in helping you better understand the audit process. Call us regarding any questions or concerns you may have regarding the audit process. This includes during an audit or immediately thereafter to discuss next steps and to assist in addressing any issues that may arise. Our underwriting staff can be reached at 212-709-8650 or by email at Info@LovellSafety.com.
How To Prepare
You will receive a notice from NYSIF shortly after your policy period ends to conduct a payroll audit to verify your payroll. NYSIF will determine the methodology on how to conduct your payroll verification or workers’ compensation audit. Audits are typically performed one of three ways:
- Onsite Audit: To schedule an audit with you onsite at your place of business or a representative’s office, make an appointment using NYSIF’s Premium Audit Scheduling System (PASS), which is available 24/7. This system allows you to schedule the audit on a date and time that suits your needs.
- Virtual Audit: You can also schedule a virtual appointment using NYSIF’s Premium Audit Scheduling System (PASS), which is available 24/7. Pick a date and time that works for you and the NYSIF auditor will schedule a virtual audit using Microsoft Teams.
- Audit Upload: Instead of having an in-person or virtual audit, you have the option of submitting the required documents online at nysif.com/auditupload. NYSIF will perform the audit based on the records uploaded and then contact you to review the results.
|Required Records||Purpose of Record|
|Payroll book||To determine the amount of gross payroll|
|Cash book/Check book||To determine remuneration not listed in payroll records|
|General ledger||To obtain an overview of operations|
|Contracts, bills & invoices||To determine the work performed|
|Federal 941, NYS-45, NYS-45 ATT||To verify payroll|
|Employee W-2, W-3 forms||To verify payroll|
|1099, 1096 tax forms||To determine if there are other forms of remuneration|
|Income tax returns (1120, 1065, 1040, 990)||To verify information from principal sources|
|Subcontractor certificates of insurance||To verify subcontractor coverage|
Certificates of Insurance
You must have on file, for the auditor, a Certificate of Insurance for any contractor who is performing work for you. This might include consultants, specialists, or other types of workers who are not employees of your company. Failure to provide a Certificate of Insurance may result in the inclusion of payments made to these workers in the calculation of your premium. For subcontractors without valid coverage for NYS the minimum of 50% of the contract price will be considered payroll if the contract is for labor and materials; 90% of the contract price will be considered payroll if the subcontract is for labor only; 33 1/3% of the contract price will be considered payroll if the subcontract is for the operation of mobile equipment.
NYSIF workers’ compensation policyholders can monitor subcontractor’s compliance with the workers’ comp law, potentially saving them unexpected costs due to uninsured subs. Using your nysif.com online account, policyholders can enter the FEIN of a sub, and NYSIF will display if they have current workers’ compensation insurance. If the sub has current coverage, policyholders can add them to their monitoring list, and they will be notified when there is a change in compliance status. Employers will remain on their monitoring list until or unless they remove them.
Keeping good records will not only help you in an audit, but it can save you money on your workers’ compensation costs. Understanding the following issues can also benefit you.
During an audit, insurance companies do not just add up the dollars paid to employees on their paychecks. Premiums are computed based upon the total remuneration paid. This includes money and all substitutes for money. If, for example, employees receive meals or lodging in addition to pay, then the value of those services must be included in the computation of total pay.
|What’s Not Included||
Note: Reimbursements must be broken down by individual employees. Records must demonstrate that expenses were incurred in the course of the employer’s business, and that the amount reimbursed approximated the actual expenses incurred.
You can deduct the extra amount over the regular rate of pay. This can only be done if your payroll records separate overtime pay for each payroll classification and indicate the rate of overtime. If separate totals are not kept, the savings will be lost. Shift time is not included.
The definition of overtime is: Those hours worked for which there was an increase in the rate of pay such as:
- For work in any day or in any week in excess of the number of hours normally worked, but in any event for hours worked in excess of 8 hours in any day or 40 hours in any week.
- For work performed Saturdays, Sundays, and holidays.
- Premium wages paid for a night shift do not constitute overtime. For instance, if you pay a night differential or another differential because of a specific shift, this would not be considered overtime and no credit would be given.
Overtime Separation Example
If your employee’s regular rate is $50.00/hour and he/she receives time and a half for overtime, the employee will be paid $75.00/hour for each overtime hour. The additional $25.00/hour can be deducted from your basis of premium. But, this can only be done if it is shown separately in your records. This separation must be done for each payroll classification and for each employee covered by your policy.
Each workers’ compensation classification has its own rate, some higher and some lower, depending on the type of work performed and a value assigned by the Rating Board. Payroll must be shown separately in each classification so that you get full credit for your lower-rated amounts. If you do not keep separate payroll totals by classification, you will be charged the highest-rated classification on your entire payroll.
Special Requirements for Construction Firms
Workers’ compensation rates vary by construction trades. If your employees work in more than one trade, you should keep separate records for the hours worked in each trade. This will allow you to charge the correct portion of your employees’ payroll total at each rate, on an actual time-spent basis. This can help you save by allocating employee time at lower rates where appropriate.
Contractors are required to ensure that all workers on a job are provided with workers’ compensation coverage. State law holds contractors, hence their insurance carriers, responsible for benefit payments to injured employees of uninsured subcontractors. As a consequence, you must either provide the coverage yourself, or require that your subcontractor do so.
Insurance carriers assess special charges to contractors for uninsured subcontractors. In the absence of payroll figures, the State Fund may pick up the entire or a portion of the contract price as payroll.
Wrap-Up / OCIP Jobs
When an owner or general contractor secures insurance for all people working on a site, it is referred to as a “Wrap-up” or an “Owner-Controlled Insurance Project” job.
On these jobs, subcontractors are released from their obligation to provide insurance for their employees, and auditors should not include the payroll charged to wrap-up jobs in the computation of your premium. However, this can only be done if you separate, in your payroll records, the wrap-up portion for each classification code.
How to Avoid Premiums on Wrap-Ups
To prove that a job is adequately covered, you are required to furnish a Certificate of Insurance issued by the carrier who insured the whole job. The certificate must be an original and must include the following:
- Description of the job
- Complete job location (city, state, zip) and job number
- Workers’ compensation policy number
- Policy’s start and expiration dates
- The State Insurance Fund named as the certificate holder
- Your company clearly identified as a named insured on the policy
Call us regarding any questions or concerns you may have regarding the audit process. Our underwriting staff can be reached at 212-709-8650 or by email at Info@LovellSafety.com.