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How to Determine if your Workers’ Compensation Company Owes You a
Misclassification Refund?
A “How to” Guide
My previous article dealt
with the alarming fact that a large number of organizations have had
their employees improperly classified for purposes of workers
compensation insurance (Workers
Comp Misclassifications Can Cost Employers a Fortune). The
consequence of misclassification could mean that a business unknowingly
paid far more in workers compensation premiums than they should have.
Just think if you found out that your company overpaid and could be
entitled to a refund? How could use this “found money”? This article
will serve as a “How To” guide to see if your company has overpaid and
deserves a refund due to employee misclassification. How you ultimately
spend the money is up to you!
What information is necessary?
The first thing you need to
do in order to conduct your self audit is to gather lots of
documentation. You will need your workers compensation declarations
pages, audit statements, experience rating worksheets, merit rating
worksheets, loss runs, running totals of premiums paid and attributable
to workers comp premiums, and records of any dividends received.
Unfortunately, you will need this information for each policy year being
audited. I would recommend auditing at least the previous 5 years worth
of data. If you find a smoking gun in any of those 5 years, you may
wish to audit prior years as well. One error can indicate past
inaccuracies and can compound the effect of future mistakes.
How do I know if my classification is correct?
Once you have collected all this information, your work really begins.
What you must determine is whether or not your organization was properly
categorized based upon what it actually did during each policy period in
question. To make that determination easier (in Pennsylvania), the
Pennsylvania Compensation Rating Bureau (PCRB) has published a set of
Standard Survey Instructions on its website (http://www.pcrb.com/).
This 85 page survey begins with some general questions about your
organization and then moves into specifics regarding your particular
industry. For instance, if you are questioning whether your business is
properly classified as a Paper Products Manufacturer, the following is a
list of the industry specific questions you would need to answer:
List, and provide percentages for, the raw materials and finished products.
Does the risk manufacture paper/operate a paper mill?
Provide a step-by-step description of the manufacturing process.
Does the risk provide contract paper services such as slitting,
sheeting, winding, finishing, laminating, etc.? If yes, provide a
detailed description of these services. List all equipment used in the
risk’s manufacturing and/or processing operations.
As you can see, these are not for the most part “yes” or “no” questions and can take quite a bit of time to answer.
Where do I submit the results?
After assembling all the data you are now ready to submit your findings
to the PCRB. Neither you nor your insurance company can just change
your code. Your code change request must be approved and processed by
the PCRB. There are very specific procedures that must be followed and
are available on the PCRB website.
To go back to our paper products
manufacturing example, let’s assume the PCRB determines your company
should actually be classified as a distributor. We’ll also assume that
the distributor class is less expensive. You can then begin to
calculate (using all your assembled worksheets) the amount of your
refund. Your insurance company will probably be willing to help you do
these calculations but I would double check them anyway. You will also
need to determine the number of years your company has been
misclassified. Obviously, if you changed from a manufacturer to a
distributor 10 years ago, your refund could be substantial.
Why don’t more companies do this?
That’s a very good question!
For one thing, even though a company could get a substantial refund, it
can be a big project to handle internally. There is also no guarantee
that any refund is due. Another reason is because many organizations
just assume that all of their information is correct.
How can I learn more?
If you would like more
information on how to determine whether your organization has been
misclassified you can contact me using my information listed below. Our
company is fully equipped to help you perform your own audit or you can
outsource the entire project to us.
Are there any other places my insurance provider may have miscalculated?
Absolutely! That is why my
next article will deal with how to ensure your experience mod is
correct. An incorrect mod can cost you a bundle as well. Until then…
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