Here is the story of a contracting business that recently called us after receiving a $13,000 worker’s comp audit bill in the mail.
This story should warn about what can happen when businesses try to DIY (Do-It-Yourself) their worker’s compensation insurance.
Watch below or keep reading…
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The Wrong Way to Purchase Worker’s Comp
In the case of this business, they made a classic mistake.
The business is owned and operated by a husband and wife. The wife owned the business 100 percent but wasn’t overly involved in the business operation.
The husband, on the other hand, was the president and primary driver of the business.
In setting up the worker’s comp insurance, they excluded the wife from coverage, which means they would not pay premiums on the small salary she took for office and clerical work.
They then correctly listed the worker’s comp class code and remuneration for their two employees who did the physical labor of the job and purchased the policy.
At face value, this is all correct.
The mistake that cost them over $13,000 at audit time was not listing the husband on the policy.
Because the husband didn’t take a direct salary and didn’t engage in the “main” operations (his words) of the business, he didn’t believe that he needed to be part of the worker’s comp policy.
This is not correct.
The husband is technically not an owner, so he cannot exclude himself or any remuneration he receives, whether it’s a direct salary or not.
Additionally, because they were not keeping detailed payroll records, the husband was charged an insurance premium against the average salary of a company's president similar in size and operations at the most expensive class code.
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The solution is to work with a worker’s compensation specialist when setting up your policy.
In the case of this company, we advised this company on a couple of different options:
- Moving forward, the husband could take an ownership stake in the business. He then could exclude himself from coverage moving forward.
- Keep proper payroll records and add the husband to the policy to pay accurate premiums against his remuneration over the next policy period.
Unfortunately, there is no course of action NOT to pay the large audit bill this year.
As outlined above, a simple error in setting up your policy can have huge ramifications.
No one wants to receive a large premium audit bill at the end of the year.
This is where we come in at Rogue Risk.
We’re workers' compensation specialists and can help you navigate the market and workforce changes to ensure you have coverage without being overcharged.
You can start with a free Workers Comp Experience Mod Audit or use the options below to get a quote today!
- You can call or text us at 518.960.6600
- Click here to contact us via email.
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