Estimating Payroll for Renewal and Avoiding Surprises When Purchasing Workers Compensation Insurance
As the insurance renewal for workers’ comp approaches, your broker or insurance carrier will ask for very specific information about the company. This information is used to assess your company’s risk and determines the premium you pay at the beginning of the policy term. Since premium is based in part on estimated payroll, you want to estimate as close as possible the actual payroll. No one wants the surprise of having to pay additional premium after the end of the term. Nor do you want to over pay at the term’s beginning. The following will help prepare and estimate payroll, and hopefully avoid surprises!
Payroll. Premium for the upcoming term is based on estimated payroll for that time period. You begin by gathering total actual payroll for a recently ended annual reporting period. Payroll data must be broken down by state and the number of employees by job code within the state. The actual payroll data is also submitted to the carrier.
Executive payroll for corporations requires a special computation in many states and is listed separately, like a separate job code if you will. To determine executive payroll, the first question is — “Who is considered an executive under workers’ comp rules?” “Executives” are individuals listed as officers of the company by Board resolution. The second question is “In what state does this executive have a primary office?” A list of state-by-state executive pay maximums and minimums, from which executive payroll is computed, can be found on the Internet or by asking your broker or carrier.
Strategic Planning. To successfully estimate payroll for the coming term, you need to know what’s being planned for the organization. Is the company planning an acquisition or divestiture, adding or reducing head count? Is it planning to close a plant or modernize one significantly changing job codes? Has the company undertaken a comprehensive workers’ compensation or safety program expected to reduce workplace injuries?
Estimating Payroll. Once you have this understanding, take the actual payroll and add or reduce it by a percentage that considers the strategic plans for the coming year. You will likely want to validate your estimation with someone in a financial role at the company.
Payroll Audit. At some point after the end of the policy term (typically six months), you are required to provide actual payroll for the recently ended policy term. Your carrier compares your actual payroll against your estimated payroll and your company either pays and additional premium or receives a refund. (workersxzcompxzkit)
Do your homework. It’s the key to estimating payroll for an upcoming renewal. Find out what’s being planned for the organization so your estimate is based on the best possible information. Don’t expect to be spot on in your estimation – it never happens. The idea is to avoid large deviations one way or the other!
Author Robert Elliott, executive vice president, Amaxx Risks Solutions, Inc. has worked successfully for 20 years with many industries to reduce Workers' Compensation costs, including airlines, health care, manufacturing, printing/publishing, pharmaceuticals, retail, hospitality and manufacturing. He can be contacted at: Robert_Elliott@ReduceYourWorkersComp.com or 860-553-6604.
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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker or agent about workers' comp issues.
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