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.