Misclassification of Workers Comp Class Codes and Payroll Codes

One of the major problems facing Workers’ comp is misclassification of workers compensation class codes and payroll codes. It is estimated that almost “$22 billion of payroll is misclassified” every year. This hurdle is especially significant for those with businesses in California, where the misclassified payroll accounts for “one-third of the nationwide total”. This obviously has a huge impact on California businesses and influences how one might choose their insurance services provider. Therefore, if you are an employer, here are some things you should know:

First, the fact is, that in California 12% of payroll is misclassified. Some might argue that the high payroll misclassification is because the average incident rate in California is almost 50% higher than the national average. One man was just recently arrested “on nine felony counts of workers’ compensation insurance fraud and tax evasion” because he “underreported” payroll. But, this man’s story does not have to be yours, because one can navigate through the system even with the current road blocks in place.

Second, misclassification occurs most often when mistakes are made. Unfortunately, in the case of insurance a simple mistake can mean a costly and headache filled audit. For example, the largest industry affected with “$500 million of misclassification on the workers’ compensation premium” is the Construction industry. Therefore, a savvy workers’ compensation insurance broker who has insight and experience working with the construction industry can help an employee navigate the ins and outs of the system. In this way, your business stays in line with the rules by working through the restrictions and restraints, and this will make all the difference in the world to your bottom line cost.

While a jail sentence is obviously an extreme situation given when someone intentionally underreports payroll info, audits are much more of a common situation. Starting off on the right foot from the get go is one of the most important factors. You must make sure that you accurately project your payroll and classifications as best you can. The right broker can help with this while also finding the most affordable quote and remain the most cost efficient by avoiding expensive audits.

While the facts may be intimidating, they do not have to be. It is important for California Employers to be aware of this issue in order to find an insurance team who can help. As long as you remain aware of these difficulties, then you are on the right track to bettering your company!