The payroll and loss data reported to the WCIRB by classification is a vital part of the pure premium ratemaking process. To help ensure the integrity of this data, the WCIRB conducts inspections of employers' operations for classification purposes and conducts test audits to validate the accuracy of the unit statistical report data that insurers submit subsequent to completing their final audit.
These inspections and test audits are mandatory and are performed pursuant to the authority granted to the WCIRB by the California Insurance Code (Section §11750.3) and the California Workers' Compensation Uniform Statistical Reporting Plan—1995 (Part 3, Section VI).
If selected for an inspection, a WCIRB field representative visits the employer's place of business to interview a knowledgeable employee and tour the facility. Following the inspection, a Classification Inspection Report is prepared describing the business operations. It includes an estimated count of employees and an estimate of the annual payroll by department. Typically, these reports are produced within 30 days of the inspection and a copy of the Report is sent to the employer and the employer's insurer. The insurer and authorized agent or broker may access the Report on WCIRB Connect® once it is published.
It is important to note that Inspection Reports are intended to identify the Standard Classification(s) that best describes the employer's business operations. The classification assignment for individual employees is within the purview of the insurer, and cannot be determined definitively until the time of the insurer's final audit when the insurer obtains a complete description of each employee's duties actually performed during the policy period. In other words, the Inspection Report is not a substitute for a premium audit.
Employers become eligible for selection of a routine inspection when they qualify for an experience modification. Most experience rated employers are re-inspected every 4 to 8 years. In addition to routine inspections, insurers may request a Special Inspection for a $200 fee if they need assistance in determining the standard classification(s) that best describes the employer's operations. The WCIRB also performs Study Inspections in connection with its classification research studies of select industries. In all, the WCIRB conducts approximately 18,000 inspections annually.
A test audit is an examination of the Unit Statistical Report data submitted by the employer's insurance company after a premium audit has been conducted. Test audits validate that the insurer assigned the proper amounts of payroll to the correct classifications, ensure the proper experience modification is used on the policy, and verify that the correct classifications have been assigned to claims of any size. Policies may be selected for test audit once the Unit Statistical Report data has been submitted.
A WCIRB field representative conducts a test audit at the employer's place of business or at the location where the employer’s records are maintained by reviewing all relevant payroll records and reports, including but not limited to payroll registers, payroll journals, individual earning reports, time cards, job records and state and federal quarterly payroll reports, e.g., DE9s or 941s. The WCIRB representative also inspects the business operations to validate the classification assignments that were made by the insurance auditor. The results of the test audit are provided to the insurer.
Approximately 3,000 test audits are performed annually. Policies are selected for test audit at random and selection for a test audit is not a reflection of the employer's business or that of the insurer.