A request for information is received by my client from their Workers’ Comp carrier, a few weeks after the expiration date of their policy.
Here is a list of the information we will be reviewing:
- Detailed description of operations
- Website address
- Email address
- Number of locations
- Current number of employees
- Officers/Owners names, State located, duties, stock/ownership % titles and individual payrolls; Need all officers, owners and stockholders – must equal 100%
- Federal ID number for each entity
- Type of entity–if LLC, how is the LLC taxed (partnership, sole proprietorship, corporation)
- Gross payroll including vacation, bonuses, overtime and commission for each, and provide duties and State for each employee
- Please advise what source the payroll was obtained from (QuickBooks, Paychex, ADP, Peachtree, etc.)
- Total gross overtime for each employee
- Subcontractors/Contract or casual labor during this period. Need the names, amounts paid and job duties and their certificates of insurance
- Need Line 2 and 5C column 1 submitted on the 941s for the each quarter of the policy term
- If in California, please submit DE9 and DE9-C for the same period
- If there is any type of Section 125 or cafeteria plan please provide total employee contributions to the plans
A few comments.
Your broker’s advice is important in preparation for any audit.
For the smaller premiums, audits are conducted by mail and by phone, with information provided above. When premiums are large, the audits are conducted on the client premises.
It is important to prepare properly for these audits. It is not uncommon for employees to be misclassified. But even if properly classified, you must understand the class codes in use for your firm sufficiently to be able to defend their use. A lower level clerk in the accounting department is often ill-equipped to answer the questions necessary for some of the finer points of classification codes and probably shouldn’t be the auditor’s source of important information.
The issue behind how an LLC is taxed has a bearing in some states as to whether or not the officers are automatically covered.
When significant shares are held by outside investors of the same investment firm, you should simply list the investment firm name and the % of shares held. The officers who are also shareholders should be listed by name and % of ownership.
‘SubcontractContract or casual labor’ is a hornet’s nest of trouble. In order for a worker to be a ‘contractor’ they must be able to substantiate they are a real business with name and dba, and separate insurance. They have to be working for other companies, not just yours. They must be responsible for the outcome of their work product, not supervised by the hour. If you have workers who are ‘contracted’ to work for you, but are working shoulder to shoulder with you in your office space and working under your supervision, you should provide 1099 information to the auditor and include them for Workers’ Comp premium calculation. If you are contracting with people for a specific outcome, and they don’t work in your environment, you may be able to avoid covering them, even if they don’t have a certificate of Workers’ Comp insurance. This is another area to discuss with your broker in order to be clear about the information to be included.
The requirement of both 941s and DE9s in California is a state requirement, not the carrier. I’m told by Workers Comp auditors of multi-state insurance companies that California is the strictest state in the US when it comes to its audit requirements. What seems financially invasive by the carrier, is actually required by our Golden State.
Mrs. McCall says
In the state of N.C. can family members be included in workers comp? If they work in a family ran business? If they make $20,000 a year and owns 5 percent of the company
do they have to be included at the $46,000 annual if they do NOT make that much?
What is the minimum amount?