A shock audit is when an employer receives the bill for an additional premium over what they originally paid for the policy. Some of the audits are so extreme that they can spell doom for the employer’s existence.
Every employer needs to know ‘is per diem subject to workers’ compensation?’ Understanding the common causes of shock audits will help answer the question.
Unanticipated Remuneration
Most employers understand that workers’ compensation insurance is based on their payroll. The payroll will include more than the basic remuneration they offer their employees.
It will include unanticipated remuneration, which will involve any additional payments they give employees and contractors, such as
- Bonuses
- Prizes and
- Performance rewards
Such charges may be made per diem, which will often be excluded from workers’ compensation purposes.
Employees have to provide receipts to receive reimbursements for per diem expenses such as food and lodging. Other expenses such as holiday pay can be considered for workers’ compensation premiums in shock audits as well.
Classification Alterations
Workers’ compensation depends on the classification of workers and the type of work they do for an employer. The categories of workers will vary from state to state according to the law.
When an employer takes out a workers’ compensation insurance policy, classifications will influence the estimations of the policies to be paid. When classifications change, it will result in a shock audit of the company.
There are limits to the classification changes, which will vary according to the state and the employer. During a shock audit, the insurance adjustors will increase the premiums for workers’ insurance policies based on the classification changes.
Payroll Allocations
Even if worker classifications remain the same, changing payroll allocations will instigate shock audits for employers. Such a shock audit is usually devastating for most employers as it can result in a premium change that the employer simply cannot handle.
You cannot change payroll allocations from one classification to another without severe repercussions. Therefore, even if workers spend a fraction of their time doing other types of work, an employer should maintain their classification or risk severe penalties after a shock audit.
Experience Modifiers
The experience of workers could also mean a shock audit for an employer as experience modification factors are crucial when calculating workers’ compensation premiums. Experience modifiers are usually calculated for employers annually and are designed to coincide with policy renewals.
Many states limit insurers’ ability to add experience modifiers to an employer’s workers’ compensation insurance policy. However, there are exceptions, and some insurers know how to tactfully apply higher experience modifiers to a policy that was in the original one.
A change in experience modifiers could cause a shock audit and lead to higher premiums for workers’ compensation insurance.
Contact an Experienced Attorney
When a company pays for workers’ compensation insurance, the original premium is not the final premium they pay, as the coverage is usually subject to review after the policy period ends. Phoenix Workers’ Compensation Attorneys will tell you that premium charges are typically adjusted based on the size of actual payrolls.
