Workers Comp insurance is a complex and confusing mystery for most business owners, and, often for brokers too!

I recently got a phone call from a painter who was being billed $57,000 in additional workers’ comp premiums from an audit. His ex-broker had gotten a policy with low-ball estimated payrolls, and didn’t carefully choose accurate classification codes. The painter had sparse payroll records, no job descriptions, and a new broker and insurer, so he had very little negotiating leverage.

Workers Compensation (WC) is definitely awash with unfathomable details – class codes, loss runs, rules and regulations (each of which can be different by state), ex-mods, minimum – maximum salaries and overtime exceptions, as well as open claims and high reserves, disputes, and on and on. Confused yet?

What are the impacts?

Getting the details wrong can have huge consequences, just as the painter sadly discovered. Here are some additional examples.

  • Wrong worker classification codes are hard to change or dispute.
  • An estimated payroll policy with a possible huge payment at the end can be a killer.
  • A few careless accidents can explode your experience modification (ex-mod) and premium rates for up to three years.
  • Without a knowledgeable broker advocate and detailed payroll records, you have little chance of disputing an insurer audit.

How can you get back in control?

Taking the time to set up a few best practices and diligently following a checklist can work wonders to eliminate the hassles and surprises of your insurance costs, and any audits down the road.

Here are some starting points:

  • You must have the right broker for your industry and business. They must be a knowledgeable advocate for you. A claims rep in their office must stay on top of open claims and high reserves to get these resolved as soon as possible.
  • You must have job descriptions that detail what, where, and how employees accomplish their tasks. And these need to be enforced. A clerical office worker who picks up packages or hangs out with colleagues in the warehouse can completely change their code.
  • If you have workers who have different job assignments – like some drywall and some painting, you must track hours for each separate task – estimates don’t count. If you don’t have records, that worker will be assigned 100% to the most expensive class.
  • Make sure your broker helps you assign the right classifications – there can be many options, with different rates, to be researched.
  • Your contractors and subs must have their own WC insurance and you must have their certificates – with effective dates for the times they worked for you. If not, they will be considered your employees, and you will be charged WC premium for their work!
  • Keep detailed, accurate records of jobs, work performed, payrolls, and time cards.
  • For an audit, work closely and pro-actively with the auditor. They have strict time limits and need to work quickly. So…
    • Be prepared and have all requested records ready and organized. Know the minimum and maximum salaries that need reporting, don’t report amounts for excluded officers, and don’t report extra pay for overtime hours.
    • Answer basic questions about your business and your records, but do not add extra details or information not requested!
    • Always stay close by if they are on premises, review their worksheets, and ask for copies before they leave. Don’t sign anything that’s incomplete.
    • For a phone or mail-in audit, get help form your broker or consultant before sending in the final information.


There are many resources, which can be overwhelming! Here are a couple that I have used – with caution – from time to time.

Always double check with your broker or consultant whenever possible.