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Audit Requirements for Construction or Erection Classifications

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Audit Requirements for Construction or Erection Classifications

February 18, 2015

In this edition: Policies with high wage dual wage construction classifications and roofing contractors are subject to additional auditing requirements. 

The California Workers’ Compensation Uniform Statistical Reporting Plan—1995 (USRP), Part 3, Standard Classification System, Section VI, Administration of Classification System, Rule 4, Audit of Payroll, provides direction regarding which policies must be physically audited. The basic requirement is that all policies developing a final premium of $13,000 or more shall be subject to a physical audit at least once a year. (The physical audit threshold was increased from $10,000 effective January 1, 2015.)

“Physical Audit” is defined in the USRP at Part 1, General Provisions, Section II, General Definitions, Rule 15, Physical Audit, as an “audit of payroll, whether conducted at the policyholder’s location or at a remote site, that is based upon an auditor’s examination of the policyholder’s books of accounts and original payroll records (in either electronic or hard copy form), as necessary to determine and verify the exposure amounts by classification.”

Some policies with construction or erection classifications are subject to additional audit requirementsas described below.

Roofing Contractors

If the policyholder holds a C-39 Roofing Contractor license from the California Contractors State License Board, a physical audit is required on the complete policy period of each policy regardless of the amount of final premium. See California Insurance Code Section 11665(a) for additional requirements regarding the audit of C-39 license holders.

Dual Wage Construction or Erection Classifications

For policies effective on or after January 1, 2014 that produce a final premium of less than $10,000 and develop exposure in a dual wage construction or erection classification that requires the regular hourly wage to equal or exceed a specified amount (high wage dual wage classification), a physical audit is required unless the policy is a renewal and the insurer physically audited one of the two immediately preceding policy periods. This audit requirement applies to all policies that develop payroll in a high wage dual wage classification, including but not limited to policies issued to Owner Controlled Insurance Programs (i.e., “wrap up” policies). The WCIRB previously issued Bulletins on this issue on December 14, 2012 (Bulletin No. 2012-23) and December 10, 2014 (Bulletin No. 2014-26).

Related Information

USRP Part 3, Section VI, Rule 4
California Insurance Code Section 11665(a)
Bureau Bulletin No. 2012-23
Bureau Bulletin No. 2014-26