Premium Audit Frequently Asked Questions
Why have an audit?
- To determine the total amount of payroll subject to premium charge;
- To determine the nature of your business and ensure your employees are classified correctly;
- To verify the division of payroll for each employee’s job classification;
- To assist you in setting up accurate records so that you will pay the lowest possible premium.
How does NYSIF determine classification?
NYSIF determines classification via the underwriting process and verification by the premium audit function in line with New York Compensation Insurance Rating Board direction. The object of the classification procedure is to assign one basic classification that best describes the business of the employer within the state. Subject to certain exceptions, each classification includes all the various types of labor found in a business. It is the business which is classified, not the individual employments, occupations or operations within a business.
How does NYSIF determine premium for uninsured subcontractors and out of state employees?
NYSIF follows guidelines as set in the New York Compensation Insurance Rating Board Manual for subcontractor charges: The contractor shall provide a complete payroll record of the employees of each uninsured subcontractor for purposes of establishing the appropriate premium. If the contractor does not supply the payroll records of its subcontractor, premium is determined as follows:
- 33.3% of the subcontract price shall be considered payroll if the subcontract is for mobile equipment with operators (such as, but not limited to, earth movers, graders, bulldozers or log skidders).
- 50% of the subcontract price shall be considered payroll if the subcontract is for labor and material.
- 90% of the subcontract price shall be considered payroll if the subcontract is for labor only.
When subs are charged, why does NYSIF include subs that could be independent contractors?
With the passage of the NYS Fair Play Act, NYSIF charges for all independent contractors working for a GC, unless they provide proof of workers’ compensation coverage. Even then, our underwriters have the authority to include charges if it can be reasonably expected that we would be held liable for any claims by an individual subcontractor. The fact that they are “independent” has no bearing on how they are treated by NYSIF.
Why does NYSIF add payroll for uninsured subcontractors, casual labor, site inspection, day laborers, unpaid relatives and payments made on my 1099?
If a policyholder hires or utilizes individuals who have been deemed as compensable “employees” by a Workers’ Compensation Board (WCB) judge in the past, we are obligated to include them to cover their exposure to NYSIF and the assured.
Why does NYSIF require actual audits, while other carriers accept reports?
NYSIF has a fiduciary responsibility to collect the proper premium to cover the costs of administering the Fund and for paying the workers’ compensation claims of our policyholders. Our experience indicates that the best way to accomplish this is via actual audits for the majority of our policyholders. In addition, the New York Compensation Insurance Rating Board requires an annual audit of any policyholder producing an annual premium of $5,000 or more.
Why does NYSIF need tax returns and contracts when conducting a payroll audit?
The auditor needs to view and account for the entire operation. Our auditors are conducting premium audits, and payroll is but one area of interest. The tax return sheds light on the size of the operation, corporate ownership, outside labor, etc. Contracts provide insight in to the correct classifications that should be utilized.
Why did I receive an estimated audit?
Our auditors are directed to make two attempts to conduct a premium audit (one attempt on a cancelled policy). If they are unsuccessful in securing an appointment or viewing a full set of records after two attempts, NYSIF estimates the payroll.
How is estimated premium calculated?
NYSIF auditors follow standard guidelines when estimating payrolls. The rates and percentages vary depending on the premium size, longevity of the policyholder and specific facts related to the risk. The goal of the estimate is two-fold; first, to generate enough premium to cover the potential exposure to the Fund and, secondly, to provide the impetus for the policyholder to provide a full set of records to our auditors.
Why did NYSIF add payroll to an audit, particularly for relatives, earning subpar wages?
In many industries (restaurants, dry cleaning, etc.), it is common for relatives to assist in the operation. Many times they are not paid or are underpaid compared to a non-relative doing the same work. However, if they get injured the WCB judge would set their wage replacement benefits based on that of a comparable worker.
What are the minimum/maximum payrolls for executive officers? How are they determined?
The current minimum and maximum payrolls for active executive officers is $29,900 and $91,000 per year, respectively. That equates to $575 and $1,750 weekly, respectively. The minimum and maximum levels are set by the New York Compensation Insurance Rating Board.
How can I best prepare for a workers’ compensation premium audit, and what records will I need?
What is a payroll report form and how do I complete it?
What is a premium audit statement form and how do I complete it?