Why Reporting Payroll is Necessary
“Why do I need to report payroll data to my insurer or cooperate with an insurer’s audit?”
Agents and Brokers may hear this question frequently from policyholders. The answer is that having accurate payroll data is necessary because it is the basis for the policyholder’s insurance premium and their experience modification.
“Estimated” or unaudited payroll
After a workers’ compensation policy expires, an insurer will contact a policyholder to schedule a final audit. During the audit, the insurer will gather information regarding the payroll by classification for that policy period, or in some cases, ask the policyholder to provide a signed payroll statement. This payroll data and claims information is reported electronically to the WCIRB as Unit Statistical Report (USR) data. When an insurer is unable to conduct an audit or obtain a signed payroll statement from a policyholder, the payroll data for that policy period will be reported to the WCIRB as “estimated” and is referred to as unaudited.
How does “estimated” or unaudited payroll affect Experience Modifications?
The California Workers’ Compensation Experience Rating Plan—1995 (Experience Rating Plan) does not allow the use of unaudited payroll in the calculation of an experience modification. When USR data reflects that the payroll is estimated due to failure on the part of the policyholder to cooperate with an audit, the WCIRB sends a letter to the policyholder explaining that unaudited payroll cannot be used in the calculation of an experience modification (although all claims reported are still included) and that this may potentially impact the policyholder’s insurance premium. Policyholders are encouraged to cooperate and promptly contact the insurer to schedule an audit. If the WCIRB does not receive a USR data correction with audited payroll within sixty days after the letter is sent to the policyholder, the WCIRB calculates the experience modification using any reported losses but excluding the unaudited payroll. This typically results in an increased experience modification from what had been produced for prior years and what would have been produced had the payroll been included.
Effective January 1, 2017, debit experience modifications (modifications greater than 100%) that exclude unaudited payroll are required to be issued even if the policyholder does not meet the experience rating eligibility threshold provided the policyholder was experience rated in the immediately preceding year. When an experience modification is issued excluding the unaudited payroll, the Experience Rating Worksheet will contain an “E” designation next to the experience modification.
If the WCIRB receives a USR data correction with audited payroll from the insurer of record after the issuance of the experience modification with excluded unaudited payroll, the experience modification will be subject to revision in accordance with, Section V, Application of Experience Modification, Rule 6, Experience Modification Corrections – Effective Dates, of the Experience Rating Plan.