By Mark Walls
Monday, January 11, 2021 | 73 | 0 | min read
Since employee compensation awards are typically based on the employer’s payroll, carriers check payroll data to ensure that employee classifications are correct and that the awards reflect the risks covered.
Mark Walls
States and rating agencies have strict rules about what counts as payroll and how rewards are calculated. Regulators also audit carriers to make sure their award calculations are consistent and accurate. Every freight forwarder is subject to the same standard in order to create a fair and competitive market.
The premium review process can be very controversial as it is labor intensive and no one wants to know they owe an additional premium on an expired policy. However, any employee compensation policy has this as a condition of coverage.
It is not clear to many that the main source of employee compensation fraud lies in payroll. Some companies will try to lower their premiums by intentionally reporting lower wages and salaries by incorrectly classifying workers. Companies classify workers as either independent contractors or as lower-premium jobs (e.g. foundry workers report as “clerks”). Sometimes these companies simply report a lower payroll than paid.
All of this complexity and controversy related to award screening for employee compensation existed long before COVID. However, the pandemic made matters worse. Many states have enacted emergency rules that require immediate premium checks, with the idea that doing so would provide premium relief for companies in trouble. However, these rules largely created confusion and resulted in high administrative costs for both businesses and transport companies. Nobody was prepared for the massive data collection and analysis efforts of the states.
While there are significant national differences in emergency rules, here are a few examples that explain what carriers, brokers, and companies they deal with while trying to manage their business during a global pandemic:
- It doesn’t matter if you are self-insured and rarely report data to the offices. States have imposed data reporting requirements on airlines and corporations related to COVID. Orders apply to all employee compensation insurance: first dollar, deductible, and auto insurance.
- Vacation pay is complicated. Vacation reports can be excluded from premium calculations if the state has approved the exclusion and if the workers meet the definition of a vacation worker. These definitions vary depending on the state.
- If an employee is on vacation due to COVID (either diagnosis or quarantine), that time off may be classified differently than someone on vacation due to another illness.
- If an employee’s COVID-related vacation is due to exposure while on the job, it may result in a right to employee compensation.
- For employers with temporarily reassigned employees, the premiums can be adjusted based on new classifications. Here, too, there are considerable differences in status. This essentially results in employers and carriers reviewing payrolls on a weekly basis rather than once at the end of the contract. It’s an extremely labor-intensive process for everyone involved.
- Employers are expected to keep extensive records of vacation pay and other fluctuations that must be reported to airlines and ultimately states.
- It’s important to understand the difference between severance pay and vacation. Vacation is temporary and you plan to bring it back.
- Every employee compensation policy has a minimum premium that continues to apply. Some airlines have lowered these awards to reflect the current circumstances, but not all have adjusted.
- Self-insured employers are expected to comply with government regulations in monopoly states like Washington and Ohio.
- It cannot be emphasized enough that there are many variations depending on the state. Even all states of the National Council for Compensation Insurance (NCCI) do not work according to the same rules.
Are you confused by all the complexity? Do not worry. You sure are not alone. There is a possibility that more emergency rules will be issued shortly to add to the confusion.
The best advice right now is to document everything and be patient. The transport companies did not establish these rules. the states did. Carriers, brokers and corporations must work together to meet these extensive government reporting requirements.
Mark Walls is vice president of communications and strategic analysis for Safety National. This blog post was reprinted with permission from InsuranceThoughtLeadership.com.
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