Who makes sure the price is right?

We do—with your help.  Zenith conducts workers' compensation "premium audits" to help prevent premium adjustments.

The cost of workers' compensation insurance depends on the nature of a business. Variables such as payroll figures and the types of jobs that workers perform affect the price of coverage.  Zenith determines your estimated annual premium (EAP) for your policy based on projections for the year ahead; your year-end audit examines the estimated figures and compares them with the policy year’s actual figures.

During an audit, business owners are often fearful of what will happen if the premium auditor needs to make adjustments to their policy. It’s important to know that adjustments don’t always mean higher premium; in fact, they may save the policyholder money. Auditors fix errors that might otherwise lead to underpayments that can result in retroactive billing, or overpayments that can affect your working capital.

Though rules and regulations vary throughout the country, the most common adjustments an auditor will help you with include:

Job Classifications – Jobs have different insurance rates based on the employees' exposure to risks in the workplace. For example, clerical employees, who have an inherently lower risk of workplace injury than warehouse employees, have a lower classification rate. If your warehouse employees’ jobs are misclassified as being clerical, the injury count/severity may reflect higher than average for a clerical employee, even though it might be on par for a warehouse employee. As a result, your local rating jurisdiction might interpret your business’ claim count as higher than average, which is a significant driver behind a business’ experience modification ("ex mod") increasing.

A higher ex mod can increase the overall price of a premium whereas paying the rate for the correct class code, though it may be higher rated when calculating premium, can save a business money over time when an ex mod remains neutral (100%) or below. By fixing classification errors, the job functions will be rated properly (follow this link to learn more about how experience modification affects your premium).

Payroll Segregation – If an employee performs more than one job activity, it’s possible to break down their time by hours worked in different job functions when more than one operating classification applies to the business. One or more of these functions may have a lower rate. This has the potential to lower your premium if an employee only spends part of their time in a higher-risk job classification.

Payroll segregation can also be applied to an entire business. For example, a manufacturing company may also purchase and resell products. In this instance, the amount of payroll attributed to the distribution part of the business would be charged at a lower rate than the manufacturing part of the business if certain pertinent classification criteria are met. Many times a business owner won’t know this until the auditor brings it to their attention. In addition, a lower rate could apply, such as in the case of standard exceptions for clerical and sales personnel, which are generally the lowest rates, as long as certain criteria are met such as the physical separation of these employees.

Payroll segregation is available in most jurisdictions throughout the country, but be sure to check with your agent or broker, or with a Zenith representative, to be sure.

Overlooked Cost Savings – There are a variety of business conditions that will allow certain deductions to a policy. Depending on the state you do business in, these may include:

• Overtime pay
• Double-time pay
• Severance pay
• Employee expenses
• Car allowances
• Bonuses

During an audit, Zenith will work with you to:

• Identify cost-savings measures you can take in terms of classifying workers, verifying payroll and other steps.
  
  
• Provide instruction on proper payroll reporting.
  
  
• Prepare reports to make the final audit process flow smoothly.
  
  
• Explain potential credits at the final audit (such as overtime, severance and tips). 
  
  
• Suggest additional potential cost savings related to bonuses, car allowances and other factors.