Avoid Costly Workers Comp Misclassifications

Article two of the six part series: The Six Thingsyour facility in 10 years and doesn't understand that
Every Employer Must Know About Workers'your business has fundamentally changed. Therefore,
Compensation Insuranceyou're still paying your workers comp premiums
The Million Dollar Questionbased on a manufacturing rate. Think a manufacturing
How do you know if your business or organization israte might be higher than a service rate?
being charged the correct amount for workersIs Misclassification Pretty Rare?
compensation insurance? I'm not talking aboutNO! Multiply that by the number of years you've
whether or not you think your premium is too high.been misclassified and you may begin crying like a
I'm asking what procedure do you have in place tobaby. The industry consensus is that anywhere from
confirm that what your business actually does is60%-75% of all companies have some sort of
properly reflected in your rate classification? I'mmiscalculation figured into their premium.
waiting...OK that's what I thought.What Could that Mean to My Organization?
Does This Describe Your Company?Assume that the rate for widget manufacturing is $8
When you first went into the widget manufacturingfor each $100 of payroll. We'll further assume that 40
business you understood that if you were going toof your 50 employees are currently classified as such
have employees, you were going to have to buyand as a group represent $1,200,000 of payroll. Your
workers compensation insurance. (If you didn't realizeunadjusted workers comp premium for this group
it now would be a good time to read my previouswould be $96,000 per year. But what if your
article). So you called your insurance agent and saidemployees were properly classified at the lesser
you were about to hire your first employee. Yourwidget service rate? For this example we'll assume
agent had always done a great job on your carthe rate to service widgets is $5 for each $100 of
insurance so you figured she's probably an expert atpayroll. You just saved yourself $36,000 a year -
workers comp insurance as well. The agent came outevery year. Multiply that by the number of years
and looked around your new business. She thenyou've been misclassified and you may start sobbing
studied her workers comp rating manual from ABCuncontrollably!
insurance company and picked one of the availableHow Can I Prevent This From Happening?
330 classifications approved by the PennsylvaniaThe answer here is twofold: (1) Partner with an
Compensation Rating Bureau (PCRB) and assigned itinsurance provider who doesn't forget about you as
to your business. The insurance company thensoon as they write your insurance policies. (2) Make
charged you a premium based on your classificationsure that your provider understands the nuances of
and your payroll. End of story right?workers compensation insurance and is proactive in
Now It's 10 Years Latermonitoring your account. In our example above, the
Congratulations! Not only have you remained inagent did check-in periodically to update your
business for 10 years you've really prospered. Nowcompany's payroll. But she didn't realize that the
instead of just one employee, you have 50. And boybusiness had changed and that a re-classification was
has your business changed. No longer do you justin order. A costly and unnecessary mistake!
make widgets, you distribute, install, and serviceSo What Can You Do Now?
them. In fact, you don't really manufacture them atNext week I will be publishing a follow up article
all. Five years ago you decided it was cheaper toshowing how you can find out if this has happened
outsource the manufacturing part of the business.to your company and also how you can recoup
Throughout this time your agent checked in with yousome of your money. Until then, contact me using
and steadily increased your payroll as your number ofthe information below.
employees increased. But she hasn't walked through