Understanding Worker’s Compensation Coverage

NY Workers Compensation Insurance

Understanding Insurance

According to NY Workers’ Compensation Law, employees are required to get worker’s compensation insurance (WCI) with a carrier that was previously authorized by the NT State Worker’s Compensation Board. If this is not possible, the employer can alternatively get authorized by the Board in order to insure himself either as a part of a group or individually.

The insurance cost needs to be paid in full by the employer without the employees having to be charged at all for it.

It’s lawful for the Board to require employers to offer employees coverage and penalize those that do not abide to this requirement. However, the Board doesn’t oversee the insurance carriers, set rates, pay claims or offer any type of insurance. But because a lot of employers contact the Board with such questions, in the following chapter we’re going to focus on providing more info about these matters.

If an employer purchases WCI, the insurance company is going to assume his statutory obligation to pay death, indemnity and medical benefits according to the law. The premium describes the potential liability of claims of the employer based on the type of industry he’s engaged in and the wages paid to employees.

Loss Costs

Loss costs are basically the true claim expenses for workers’ compensation coverage, fixed by the NY Insurance Department, presently upon recommendation from the CIRB. Based upon future projections and NY State employers’ experience, the Compensation Insurance Rating Board recommends a percentage decrease or increase in the loss costs to the ID every year.

NY Workers Compensation Loss Costs

This year, the NY State decided to move to a loss cost system for rates concerning workers’ compensation. In the loss cost system, the Compensation Insurance Rating Board is going to keep collecting and aggregating industry data, but instead of filing a manual rate with the NYSID for approval, it’s only going to submit the loss costs, which represent that specific part of the rate that doesn’t include general expenses, including profit, taxes and also overhead.

The rates need to be approved by the NYSID and are eventually going to be determined by using loss cost multipliers specific to each carrier that are filed by each of them and reflect their individual expense structure and underwriting skill. This particular loss cost approach is presently used by most states. It’s expected that this rate-setting process is going to have a major impact on price competition among insurance companies.

In total, there are more than five hundred types of classifications of workers and each carries a particular loss cost that’s used in order to determine workers’ compensation premiums. Classification codes are assigned to employers based on the type of work being performed or the classification that most appropriately represents the kind of work the employer performs (in the lack of an exact match).

In the majority of cases, the employer’s loss of cost is meant for the classification that best reflects the nature of his business. The majority or even all employees within the business are going to be assigned to this class. A part of the employees may also be grouped in a standard exception classification, which incorporates occupations such as outside salespeople, messengers, drivers and also clerical workers.

As such, if a secretary works in an office, then this means she is not at risk of being involved in any kinds of accidents, so the payroll for her if she works in a construction company is going to be included in the clerical class.

Since they face similar risks, singular businesses performing similar work are going to fall under the same classification. Loss of cost is assigned to each classification depending on the contribution to the entire workers’ compensation costs. The loss cost is determined by the average loss experience of every member of the class counted as a whole, meaning the possibility of injuries in that specific profession and not the history of accidents of the singular company.

Each carrier rate also has a minimum premium assigned which is basically the lowest amount of money an insurance company accepts in exchange for providing their services to a buyer. Rate percentages change on a yearly basis and are multiplied by every $100.

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Experience Modification Factor

The CIRB (Compensation Insurance Rating Board) comes up with experience modification factors for companies that pay a premium of at least five thousand dollars per year towards their worker’s compensation. The experience modification factor modifies the premium the employer pays in order to reflect the difference between the average experience that’s expected for its size and classification and also his loss experience.

The Experience Rating Plan focuses on the number of claims, but also on the gravity of any accidents that might take place in the workplace. If a specific employer’s experience is greater than the average expected for his industry (with a similar payroll), then the company is going to get a premium credit.

Experience Modification Factors for NY Workers’ Compensation

Conversely, if the employer’s experience falls below the comparable average, he receives a premium debit. Since the employer can directly influence her or his premium like this, it serves as an incentive to eliminate and also control the injuries that may take place in the workplace.

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Assessments

NY Workers Compensation Assessment

The NY State WCB (Workers’ Compensation Board) is categorized as a state government and therefore receives zero funding through general tax revenue. As a result, the WCB needs to effectively recover all incurred costs while delivering its services using its own funds.

According to the law, if the Board is to recover any of its administrative costs, including travel, supplies, personnel and so forth, this is going to be possible thanks to a series of general administrative assessments which will be paid by self insured employers and insurance agencies. Assessments are also used for funding many other types of programs that pay claimants or reimburse carriers under specific circumstances, including the Special Fund for Disability Benefits, the Uninsured Employers Fund, the Fund for Reopened Cases and the Special Disability Fund.

The cost for these other special program assessments is covered by the same self insured employers and insurance agencies. (WCL 228, 214, 151, 108).

Any workers’ compensation assessments made against the carriers will be passed on to the employers who are going to pay a specific surcharge on their yearly premium. This extra tax will be based on the percentage changes every year and on a specific percentage of premium. Since the liabilities and losses for such programs go up and down, the same thing happens to the assessment charged to self insured employers and insurance carriers.

On top of that, there are also yearly assessments against employers who insure themselves. The specific amount is going to be calculated by the Board using the payroll of each specific employer and multiplying it by a certain class code that’s promulgated by the CIRB. This is what’s referred to as a “pure premium calculation”.

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Terrorism

Workers compensation premiums have always covered workers for injuries and illnesses related to acts of terrorism. The cost of this Terrorism Insurance is now specifically itemized on the policy premiums.

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Payroll

When an insurance carrier decides to write a policy for a specific employer, in order to calculate the premium, both the assessment and the classification rate will be used. Next, a total yearly payroll is requested from the employer. The price of the insurance premium is the classification rate for a classification increased by every one hundred dollars of payroll, including the cost of the assessment.

Calculating NY Workers Compensation Premium

Because the premium is based, at least in part, on payroll that’s calculated at the start of the policy year, it’s possible that the final premium will be less or more, based on the actual payroll when the policy year ends. Any required adjustments will be made at that time, resulting in either an extra charge or a refund. If the employer clearly understands his payroll at the start of the policy, he may get a smaller bill for 1 or 2 years, but if the policy is audited, then he’s going to have to pay retroactively for his premiums.

All outstanding premium amounts owed are the employer’s liability, regardless if he may have cancelled the policy in the meantime. In the event the understatement is intentional, this could be categorized as a Class E felony (fraud).

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Misrepresentation

It’s the duty of every employer to keep accurate records of the accidents, wages, classification and number of employees in their company for 4 years. If the employer attempts to:

Misrepresentation of NY Workers Compensation

  1. Avoid proper classification by concealing employee duties,
  2. Materially and intentionally concealing or understating payroll or
  3. Concealing any other kind of info required for the calculation of the premium paid for the purpose of securing compensation.

It is going to result in a fine of two thousand dollars for every ten-day period of failure to comply or 2 times the compensation cost.

On top of that, the fine for criminal conviction is set between one thousand dollars and fifty thousand dollars.

Some examples of misrepresentation include:

  1. Intentionally concealing or materially misrepresenting info required for the calculation of the premium paid.
  2. Wrongfully classifying the work of a company to a classification that’s less hazardous, and
  3. Wrongfully classifying employees as independent contractors, and
  4. Failing to report salaries paid to illegal aliens and
  5. Paying staff off the book.

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NY Construction Employment Payroll Limitation Law

NY Construction Employment PLL

The main reason the PLL ratified is to apply a maximum cap on payroll for erection classification codes that meet eligibility criteria for the purpose of determining the right workers’ compensation insurance premium. However, it’s important to notice that the Law doesn’t apply to builders erecting residential buildings (1 or 2-family).

The payroll cap affects the weekly (and actual) payroll per worker in each and every construction classification code that’s eligible for this specific limitation. The actual payroll is utilized for employments that erect residential buildings (1 or 2-family).

For the reason of varying the necessary classification rate off balance between downstate and upstate employers, the Law created 3 geographic territories. These specific charges are known as the “territory premium differentials”.

Please get in touch with the CIRB by accessing www.nycirb.org or by calling 212-697-3535 to learn more about the Payroll Limitation Law and how it might be affecting you as a builder.

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Audit

It falls within the rights of each carrier to audit a policy every 3 years (at the least), but there are also certain types of policies that can be audited several times per annum. During an audit, the employer is required or provide copies of general ledgers, payroll, checks that have been canceled and other financial info. If an employer fails to maintain an adequate and accurate record, then he may be penalized by the NYS WCB at a rate of one thousand dollars per every 10 days that such records are nonexistent/deficient.

Given the fact that employers are limited to estimating the amount of payroll they may have during the coming year, it’s only natural that premiums are going to be calculated based on the estimated payrolls. In the majority of cases, the estimated payroll can be much lower or higher than the actual payroll, resulting, at least at the beginning of the policy year, in a lower or higher premium.

Audit of Payroll – NY Workers Compensation

However, after the payroll audit is conducted, the premium will be rectified. After the payroll audit is complete, the real payroll figures are going to play an essential role in determining the premium the employer needs to pay and he is either going to get a surcharge or a refund. Because of that, it’s in the interest of the employer to accurately predict the payroll amount. It’s also important to understand that if the payroll is intentionally understated, then this may be classed as a class E felony or simply, fraud.

Auditing of Payroll Independent Contractors

According to the NYS Workers’ Compensation Law, it’s not mandatory that 1 or 2-person corporations, officers or partners, and sole proprietors to provide coverage for themselves. However, things get a bit complicated when a coverage-exempted business is a subcontractor or hires subcontractors that are engaged by a general contractor (GC). In the majority of cases, under section two and three of the Worker’s Compensation Law, a Judge considers the Subcontractor to be a direct employee of the GC. On top of that, the Worker’s Compensation Law, section fifty six outlines that a GC or its insurance company is liable for payments of compensation to employees that are injured on the job and are of a subcontractor that lacks proper insurance.

In order to protect themselves against these types of claims, insurance companies usually charge extra fees for policyholders that employ independent contractors.

In addition, insurance companies usually assess GCs premiums for coverage of every working subcontractor, except when subcontractors provide proof that they’ve already purchased a workers’ compensation policy.

Accordingly, GCs frequently request subcontractors to provide proof that they have Workers’ Compensation coverage in order for them to be hired for the job. This leads to many 1 or 2 person corporations, partnerships and many sole proprietors with 0 employees who aren’t otherwise legally required by law to purchase a workers’ compensation policy, include their names on it for the purpose of being able to work for a certain GC.

Classifying Independent Contractors and Employees

It’s not possible that a business demands its employees to contribute to a WCIP (workers’ compensation insurance policy) or purchase their own WCIP. On the other hand, it is possible for the business to demand that an independent business that acts as a 1 or 2-person owned corporation, sole partnership or proprietorship or a business that has its own employees to get a WCIP if the independent business works as a subcontractor. In general, independent businesses have characteristics, including its own FEIN, business forms or stationary, business cards, commercial phone listing, working under its own business insurance, operating authority or permits or/and maintaining a different establishment. The independent business has a great investment in means of performing work and facilities.

Let’s say that Business 1 decides to contract with Business 2 in order to perform certain services and Business 2 is independent without or with its own staff. In this case, it’s possible that Business 1 requires Business 2 to have its own WCIP and also acquire a certificate of insurance for this policy. By doing so, Business 1’s WC premiums are going to be as low as they can possibly be.

When it comes to independent contractor status, the NYS WCB isn’t able to make advance determinations, yet it does take such decisions on individual basis and only when a claim is filed.

Payroll Auditing: Remuneration

Please check the CIRB manual by going to nycirb.org2007manualspdf4comp.pdf in order to learn more about the specific premium amount employers need to pay. The premium is calculated by taking into consideration the total amount of money paid by the company for employees’ services that the policy covers.

Exceptions

There are certain classifications that have a unique premium basis to. For instance, when it comes to the premiums for domestic employee classification, these are calculated based on the total number of staff a company hires. To learn more about this, please check the Rule XIV found in the Compensation Insurance Rating Board Manual. There you’ll find that the premiums for specific construction categorizations have been calculated on the basis of limited pay.

Remuneration for the purpose of calculating premiums includes:

  1. Payments for cafeteria plans (IRC 125), staff savings plans, salary reduction made through the salary deductions authorized by the employee from his gross salary, are also contained.
  2. Bonuses, including sick days, vacations, paid holidays, the majority of extra pay for overtime, annuity plans and stock bonus plans.
  3. Salaries or wages including draws and commissions against commissions and retroactive salaries or wages.

Payment for incentive plans, profit sharing or piecework

  1. Payment for the filming of commercials, with the exception of subsequent residuals that are earned by the participants to the commercial every time it is broadcasted or appears in print.
  2. Expense reimbursements to staff to the extent that the employer’s (company’s) records doesn’t prove that the expense incurred was categorized as a valid business expense.
  3. The worth of credits, merchandise, store certificates, value of meal and all other cash substitutes the staff received as part of their salary. For specific fringe benefit exclusions, please refer to the Exclusions below.
  4. The rental value of a house, apartment, of lodging that was offered to an employee based on comparable accommodations.

Note: It’s important to mention that if it’s possible to prove that the employee was delegated for a business trip in the company’s interest, but the employer didn’t maintain receipts for any potentially incurred expenses, a sensible expense allowance is going to be permitted within prescribed limits.

Remuneration for determining premiums excludes:

  1. Work uniform allowances.
  2. Supper cash for late work.
  3. Discounts for employees for goods bought from the employee’s company (employer).
  4. Payments for active military duty.
  5. Specific reimbursed allowances and expenses.
  6. Dismissal of severance payments (with the exception for accrued vacation or time worked).
  7. The value of outstanding awards for individual discovery or invention.
  8. Specific payments by an employer (company) to group pension plans or group insurance for employees.
  9. Gratuities such as tips and similar that the employees received.

Sick pay received by employees from third parties, like an insure group’s insurance company that pays disability income benefits to an employee that was disabled as a result of an accident.

Expense Allowance

Perks provided by the employer, including:

  1. Tickets to any kind of entertainment event.
  2. Club memberships.
  3. Discounts on services or property.
  4. An incentive vacation.
  5. An airplane flight.
  6. A car.

Any contribution that the employer made using its own funds which are influenced by the amount that the employee contributed with.

Employer contributions to cafeteria plans, retirement plans, employee savings plans and salary reduction (IRC 125).

Salaries paid for time off from work

Certain employers may pay their staff for time off from work. The payable amount should be added to the payroll.

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Policy Cancellations

NY State Workers Comp Cancellation Policy

According to the NY State Worker’s Compensation Law, insurance companies need to inform employers and the Chair of the WCB of policy cancellations. Insurance agencies need to inform the employer via certified mail ten days prior to the policy’s cancellation for failure to pay the premiums. If the policy is cancelled for any other reasons than failure to pay the premiums, the insurance agency needs to provide at least thirty days notice to the employer via certified mail. The same applies to carriers, which need to inform the Chair of the WCB electronically of any policy cancellation within the timeframe included above.

If an employer is presently insured by the SIF or the State Insurance Fund and he decides that it would be a better idea to place coverage elsewhere, then he needs to inform the SIF thirty days prior to doing so.

If the employer is informed about the policy’s cancellation for reason of nonpayment and fails to pay the outstanding balance within the allocated amount of time, the policy won’t be reinstated even if the bill is eventually paid in full later on. As a result, the employer will be uninsured and is going to face the penalties from the WCB and also be liable for the entire payment of any claim occurring in this timeframe of lapse.

It’s important that the employer gets new insurance coverage as soon as possible and he can file, if suitable, an application that can be reviewed by the Board, of any award on the penalties or claim assessed by the WCL Judge for failure to comply. If suitable, the employer can also apply for a second review of the penalties incurred as a result of failing to comply. If coverage is cancelled, then the employer needs to schedule an audit with the insurance company at the soonest for the purpose of determining the final bill.

When a policy is cancelled (regardless of party) at any given date that is sooner than the policy’s anniversary date, the insurance company is going to charge a short rate insurance. The penalty represents a small percentage of the amount of time it was in effect for the policy year, and is in addition to any premium due. As a result, the bill of a policy that was effective for only 180 days, is going to be sixty percent of an entire year’s premium instead of fifty percent of the amount if the premium was prorated.

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The High Cost of Going Without Workers’ Compensation Insurance

The cost of Workers Compensation is very reasonable.Any employer who fails to provide workers’ compensation coverage is subject to fines or criminal prosecution. It is a crime. Stop Work orders may be issued on top of that, also add on the cost of a lawyer to defend and possibly losing a civil suit for an injured employee.

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Uninsured Employers Fund

If an employee is injured in the absence of a workers’ compensation policy and decides to file a workers’ compensation claim, the entire cost required to treat their injuries is going to be paid in full by his employer. If a corporation or company doesn’t have workers’ compensation coverage, the treasurer, secretary and president of the company are liable for possible criminal prosecution, but also for penalties, compensation payments and medical care.

NY Workers Comp Employers Fund

The NY State WCB Bureau of Compliance is the one that handles uninsured claims. The UEF or the Uninsured Employers Fund is the mechanism funding medical and compensation payments to injured employees whose employer wasn’t insured properly when the accident took place. The claims are generally processed by the staff that is tasked with collecting required evidence, preparing the claim for hearings and administering the payment of all medical and compensation benefits. The UEF is also represented by a team of lawyers at potential WCB hearings.

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