Misclassification

In the example below, a discrepancy related to whether salespeople working for a roofing company should be classified as roofers could cost the roofing company $431,000 in workers' compensation premium - per year!

January 1, 2008

You are a roofing contractor in the state of Florida with $8,000,000 in payroll. 1/4 of your payroll is for your salespeople, the remaining payroll is for your roofers.

Your premium should be calculated as follows:

Class Code

 

Description

Payroll

Rate

Manual Premium

8742

 

SALESPERSONS OR COLLECTORS—OUTSIDE

2,000,000

0.64

12,800

5510

 

ROOFING—ALL KINDS & DRIVERS

6,000,000

22.19

1,331,400

 

 

 

 

 

 

 

 

Total

8,000,000

 

1,344,200

You work out a payment plan with your insurance company to pay $1,344,200 workers' compensation premium during the year.

 

 

 

 

 

 

July 1, 2009

Upon performing an audit of your company, your insurance company decides that all of your employees are roofers.

They calculate your premium as follows:

 

 

 

Class Code

 

Description

Payroll

Rate

Manual Premium

8742

 

SALESPERSONS OR COLLECTORS—OUTSIDE

-

0.64

-

5510

 

ROOFING—ALL KINDS & DRIVERS

8,000,000

22.19

1,775,200

 

 

 

 

 

 

 

 

Total

8,000,000

 

1,775,200

 

 

 

 

 

 

 

 

 

Premium Difference

431,000

August 1, 2009

Your insurance company sends you a bill for the premium difference - $431,000.
This bill is on top of all bills related to 2009 workers' compensation premium.

Notes:

 

 

 

 

 

The example above was simplified to demonstrarte the effect of misclassification, and does not include the effects of experience rating, premium discounts, or any other rating program generating premium credits or debits.

 Please contact Bill Hager at 561-306-5072 or bhager@expertinsurancewitness.com for more information.


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