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Workers Compensation Payroll Mistakes - How They Effect an Employer's Cost
By Randy Sieberg, CIC, ARM, CRM

There are two common workers compensation payroll mistakes an employer may make. Both effect the employer in different ways. Both have a cost associated with them.

The first is underestimating projected annual payrolls. An employer's workers compensation premium is directly related to the estimated payroll, and any underestimating of payroll at the beginning of the policy period will result in additional premium being due at audit time. Many times this is a large additional amount due that comes to the employer as a surprise.

When an employer underestimates his payroll there are a couple of things that happen:

  • It exposes the business to a large additional premium due after audit.
  • Inefficient use of premium funds in that a potential large audit bill will be due in full rather than making premium payments in installments over the active policy period.
The second common payroll mistake is overestimating payroll. When workers compensation payroll is overestimated;

  • The employer in fact is overpaying for his workers compensation insurance coverage. Even though the employer may recoup the over payment after audit his audit is complete.
  • The employer is allowing an insurance company to hold his overpaid premium funds, without the benefit of any return on investment. Certainly not a very efficient use of the employers insurance fund's.
Setting the proper payroll projections from the beginning of the policy period may seem a difficult process but a process in which an employer will be rewarded for accuracy. Underestimates and overestimates both create unfavorable situations for the employer and diligence must be applied to make sure the payroll being used to setup the policy is as accurate as possible. Periodic monitoring of payroll during the policy period will help the employer keep his projected payroll up to date. Simply by checking the actual payroll with the projected payroll a couple of times during the policy period may avoid a large additional premium or return premium after audit.

This article is brought to you by WorkCompConsultants.com, an independent workers compensation consulting firm dedicated to helping employers prevent and resolve work comp issues.