What you need to know about recent workers' compensation rulings and your premium audit

Important: This article is a must-read for employers with either furloughed employees and/or a temporary change in operations due to COVID-19.  

Workers' Compensation Premiums: What You Need to Know

There are many factors that go into generating rates for Workers' Compensation premiums.  Major drivers are the type of operation (restaurant, landscaping contractor, auto repair garage, etc), payroll, and losses. 

In normal years, you estimate annual payroll for your policy period.  At the end of the policy, you are audited for actual exposures.  You may owe more, the insurance company may return premium, or you estimated correctly and nothing more is owed.

2020 has not been a normal year.  What if you continued to pay employees even if they were all sent home (thus a change in exposure)?  Why should an employer be charged for an exposure that was not truly incurred?

In welcome news for many employers, state workers' compensation rating bureaus have released guidelines on how to handle furlough pay and reclassifying employees working from home. 

It is imperative that employers with paid furloughed employees should keep separate, accurate, and verifiable records. If payroll records are not maintained, payroll will be assigned to the classification for work normally performed by the employee prior to any emergency orders, laws, or regulations issued due to the COVID-19 pandemic.

In most states, payments made to furloughed employees (not working, but being paid) are excluded from Workers' Compensation premium calculations and will be reported as exposure in a separate statistical code for Workers' Compensation. The approved changes will be applicable to all policies in effect on or after March 1, 2020 until Dec. 31, 2020.

Guidelines have been established on handling furlough pay, based on rules and regulations provided by state rating bureaus, as well as National Council on Compensation Insurance (NCCI). Following is a table that summarizes the changes.  Further explanation is provided below the table.  (The table does not include every scenario or rule)

**Regardless of funding source (government loans), furlough wages are still excludable. Applies to all states.

Record-Keeping Guidelines

Payments to Paid Furloughed Employees

If you continued to pay your employees to stay home and perform no work during a time where your business operations have been suspended because of a federal, state, or local emergency order, you will need to identify the wages your company has paid to your furloughed employees and provide them to your auditor at the time of your audit.   

Payments made to paid furloughed employees may be excluded under certain state orders (NY will include these wages at the clerical rate), if separate, accurate, and verifiable records are available.

Temporary Changes in Your Business Operations

If you have temporarily changed your business operations because of a federal, state, or local emergency order, you will need to identify these changes in business operations as they may affect the rating and classifications on your policy.

• Employees working from home or performing new/different job duties
  If your employees are temporarily being paid to work from home or have been reassigned to different work, please indicate these employees on the payroll records provided to your auditor.

Verifiable Records

It is imperative to maintain proper record-keeping with verifiable records including, but not limited to, hardcopy or electronic versions of payroll ledgers, journals, registers, vouchers, or contracts.

Some examples of documentation methods would be:

• If using payroll software, create a COVID-19 row showing hours and wages by employee from the date sent home until they return
• Create a separate log for hours and wages for COVID-19 pay for employees working at home doing clerical work or being paid but not working.  

Incentive Pay

Please note, when separating the payroll for the disruption period, employers should NOT include Bonuses, Vacation, Holiday, Sick and other benefits compensated/paid during the business disruption. These benefits will be included with the employee's payroll, under their job classification code, prior to the business disruption.   

Important Information Needed

Please provide the following to your auditor:

• Date furlough began/ended for each employee

• Names of the employees who changed duties
• Date of change
• New duties
• Previous and current schedule
• Date your operations changed
• New operations your business is performing

What's Next?

Please contact your Protection Analyst if you have furlough pay or employees working from home so we can provide specific guidance on records needed at audit.  

We're doing our part to provide you with tools to help ensure your business can continue.  Accurate tracking of the above changes is an excellent way you can take advantage of modifications made to help employers.   

Note: Information in this blog was compiled from announcements Keller-Brown received from our following insurance company partners: Penn National Insurance Company, Selective Insurance, and Lackawanna Insurance Group.