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2017 Experience Rating Plan Changes: The Importance of Audit Compliance on Experience Rating

Reporting payroll to the WCIRB

After a workers’ compensation policy expires, an insurer will reach out to their policyholder to conduct a final audit of payroll by classification for that policy period or they may ask the policyholder for a signed payroll statement. Payroll data and claims information are reported to the WCIRB on a Unit Statistical Report (USR). When an insurer is unable to conduct an audit or obtain a signed payroll statement, the payroll data for that policy period must be reported as “estimated” on the USR and is referred to as unaudited.

What happens when payroll is estimated or unaudited?

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. The WCIRB sends a letter to all policyholders with “estimated” payroll reported on the USR, explaining that unaudited payroll cannot be used in the calculation of an experience modification (although all claims reported are still included) and that this might 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 correction with audited payroll within sixty days after the letter is sent to the policyholder, the WCIRB promulgates the experience modification using any reported losses but excluding the unaudited payroll. This typically results in an increased experience modification from the prior years.

What’s changing?

Effective January 1, 2017, the Experience Rating Plan requires debit experience modifications (modifications greater than 100%) that exclude unaudited payroll 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.

What will this look like on the Experience Rating Form?

When an experience modification is issued excluding the unaudited payroll, the Experience Rating Form will contain an “E” designation next to the experience modification.  

Revision of Experience Modifications issued with excluded unaudited payroll

If the WCIRB receives a USR 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.

1  Section III, Eligibility and Experience Period, Rule 3, Experience to be Used for Rating California Workers’ Compensation Insurance Risks.