How Insurance Companies Charge Workers' Compensation Premiums
The premiums charged for workers' compensation insurance policies are calculated on many different factors, and they're paid in two intervals. If your business has employees and needs workers comp insurance, here's what to expect with regard to premium payments.
Insurance Companies Consider Vocation and Salaries
The premiums charged for workers' compensation policies are based largely on what employees do and how much they make. The former detail impacts the risk of an accident, as some vocations are more prone to injuries than others. The latter detail affects the potential cost of a claim, as part of a claim payment covers lost wages.
The type of work that employees do is categorized according to the National Council on Compensation Insurance's system. The system identifies different vocations and fields with four-digit codes, which can be broad or highly specific. For example, the following are some codes and their corresponding positions:
- 0006 is for employees who raise animals
- 3042 is for employees who manufacture elevators or escalators
- 5022 is for employees who work as masons
- 9170 is for employees who clean chimneys
- 9403 is for employees who collect non-residential garbage
The amount that people make is based on their current salaries at the time that a workers' compensation policy is purchased. So too is the number of employees. Both figures are normally provided by businesses via a good-faith estimate.
Insurers Conduct Workers Compensation Audits
At the end of each workers' compensation policy's effective period, the issuing insurance company conducts an audit. The audit involves reviewing how many people were employed, what their positions were, and how much they made during the policy's effective period.
The information that's needed to conduct the audit is obtained from the business's books. Therefore, every business should keep accurate records of who works, when they work, and how much they make. These records will ensure that the auditing process is smooth and easy.
Depending on what the audit shows, an additional premium may be charged or a refund might be issued. If the initially charged premiums, which were based on the good-faith estimate, were lower than what should be paid, then the remaining balance will be billed. If those initial premiums were more than what should be paid, the extra payment gets refunded.
Employees Can Change During Policy Effective Periods
Workers' compensation audits frequently result in premium adjustments, whether they're additional bills or refunds. Estimates aren't always perfectly accurate, and the hiring, firing, or promoting of employees during a policy's effective period can alter what is charged.
Call an insurance professional to learn more about workers' compensation.