Ask the Experts: Reporting Payroll for WC Coverage

Do I need to be accurate when reporting payroll for Workers’ Compensation coverage?

It is very important that you be as accurate as possible. As you may know, workers’ compensation contributions are based on the job duties and payroll of those covered. Reporting payroll inaccurately could lead to big trouble later. Below are a few common scenarios where misreporting your payroll could cause big headaches:

Scenario 1:

At renewal, your district had previously employed eight workers classified in Waterworks Operations for a total payroll of $750,000. Your adopted budget for next year includes nine employees for a total payroll of $800,000, and that’s what you indicate at renewal.

But what if the new employee isn’t in Waterworks Operations? That class code, which is 7520, is assumed to be someone who works in the physically demanding roles of water plant operations, installation, repair and maintenance of water mains and pipes. But what if this new person is a customer service representative with a clerical job? Coverage for them would be rated considerably cheaper than the water operators. The rating difference could translate into hundreds or even thousands of dollars of savings.

Scenario 2:

Your district received new funding and grew substantially last year by adding ten full-time firefighters. Unfortunately, no one reported the addition until the yearend audit. The result was a sudden $20,000 increase in contribution to cover the new firefighters. That amount wasn’t budgeted, and the district is now scrambling to pay. Had the addition been communicated earlier, a reasonable installment plan could have been used to help ease cash flow concerns.

The Hard Truth

Underreporting payroll is a common issue for workers’ compensation carriers like the Pool. Clients may underreport actual payroll in error, or do so sometimes deliberately to reduce their workers’ compensation cost. However doing so intentionally could result in court-imposed financial penalties.

Per NCCI administrative rules, workers’ compensation payroll information is audited annually. Workers’ compensation providers are also allowed to audit this information going back three years. Noncompliance may even result in costly and time-consuming physical audits. Accurate payroll reporting plays a crucial role in fair rate making for all employers in Colorado.

Are you confident that the payroll reported to us is still accurate? Here are some tips:

  1. Always report gross wages and salaries at renewal
  2. Promptly report payroll changes when there’s a material change in staffing structure
  3. Bonus, vacation, sick, and overtime pay must be included
  4. Value of meals, lodging/rental, and gift certificates provided to employees are considered payroll and must be reported
  5. Exclude severance pay and district’s contributions to group life, health, dental, and retirement plans

If you need more information about payroll reporting, feel free to contact us for additional guidance.

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