As an accountant and payroll provider for small business owners, our team often receives requests from our clients to assist reporting the earned wages to their workers compensation provider. Depending on the structure of their policy and the size of their payroll, the company may be required to make monthly estimated installments or calculated “Pay as you go” payments based on the actual wages for that pay cycle. While 48 out of 50 states require a business with employees to maintain a workers’ comp policy, the lack of standardization often makes it difficult for business owners to understand how premiums are calculated. This is often where many cash flow horror stories get started, and why we also review a client’s workers compensation policy during our initial onboarding process.
Prior to joining Parkway Business Solutions, many of my years were spent managing different small businesses. It was during that time that I learned how important it was to review the workers compensation insurance policy each year if I wanted to avoid being over charged. Like other business owners, I was not familiar with the different aspects of a policy that could directly impact my annual premium until it was already too late. It was those expensive lessons from my past that ultimately helped one of our current clients save over $6,500.00 when we first brought her on as a client nearly four years ago. The client owned a growing interior design business in Southern California that only employed two people, yet the cost of the workers compensation insurance struck me as unreasonably high. After requesting a copy of her policy to evaluate the class codes that were assigned and the accuracy of the wages being reported, we discovered that the agent had assigned their sales members into a classification with a much higher rate attributed based on an inaccurate job description. While it took a little bit of time working with the insurance provider to make our case for the erroneous classification to be corrected, we ultimately were able to get the policy straightened out correctly. But the story does not end here.
Normally an error of such a nature should have been captured during the annual audit, however in this scenario, the classification codes were so close that every auditor just assumed that the classification was correct and the higher rate continued year after year since no one ever questioned it. To make matters worse, after three years without any claims, the policy provider had never reduced the experience modifier back down from its premium rate. After establishing the error had occurred on the policy providers side of the paperwork, we were able to convince the company to retroactively correct the overpayment and our client received her $6,500.00 refund check.
These difficulties could have easily been avoided by selecting a Pay as You Go policy instead of an installment plan which helped to hide the errors throughout the year. Bulk monthly payments often contained larger variances in the total number of hours worked making it common for the total premium payment to also vary. With a Pay as you Go policy, wages are reported at the end each pay cycle and your workers compensation premium is automatically deducted from your account. In our scenario, our client was already using QuickBooks Online with Payroll, which simplified the entire process to sign up with AP Intego, Intuits in product partner for workers compensation policies. By providing a copy of prior market quotes, they were able to beat other providers rates, while also eliminating the need to manually report the wages every month.
When everything was all said and done, our client ended up with a better insurance policy, that cost less, no longer had to file monthly wage reports, and had better visibility into her true cost of labor and company cash flow. More importantly, when it came time for the annual audit the next year, our team spent less than 30 minutes preparing all the necessary document before submitting everything electronically. Oh and of course, we cannot forget about that nice, refund check.
Make sure to join Lynda Artseani and I today (March 4) at 3:00 p.m. Eastern Time for our webinar "6,500 Reasons to Review Your Workers' Comp Policy." Register here.
Author Bio: Matthew Fulton is Co-Founder and CTO of Parkway Business Solutions where he uses his passion for technology to create time-saving tools for accountants, and bookkeeping solutions to fit the needs of the modern small business owner. Recently entering private beta, his current project, Vendorsync provides bookkeepers and accountants the most efficient bank import process for QuickBooks Desktop by eliminating over 50% of the data entry requirements.