Workman's Comp. Audit

 
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Old 03-31-2008, 02:53 PM   #1
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Workman's Comp. Audit


I am getting audited for Workman's compensation and had a few questions. The time period in question is when I had employees and a crew (yes I had a comp. insurance policy for this period). Now I am just a solo operation and sub everything out.

I am getting ready for my audit but would like any advice from people who have gone through similar situations. Hopefully some advice will keep me from a shotgun blast after the fact.
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Old 03-31-2008, 02:59 PM   #2
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Re: Workman's Comp. Audit


I've never gone through one, but it has always seemed pretty clear that you need to have copies of proof of workmen's comp from your subs or you can end up paying retroactively for them if they were't covered. You might scramble and gather that paperwork from them if you don't have it on file already. Naturally, if any of your subs are one-man shows, the owner doesn't need comp on himself.

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Old 03-31-2008, 03:15 PM   #3
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Re: Workman's Comp. Audit


Was this triggered by something? An old employee trying to collect comp. or unemployment. I don't know what Florida law is, but we had a problem years ago where the State had to determine the status of a worker, was he an employee or an independent contractor, it was a pain in the ass, they were asking all types of questions about whose tools and vehicle he used, etc. It worked out okay, but I would say if you have anything you're unsure of or if this was triggered by an old "employee" or sub I'd contact an attorney. If nothing triggered the audit it might just be a random, routine audit and nothing to worry about, I'd ask first.

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Old 03-31-2008, 03:19 PM   #4
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Re: Workman's Comp. Audit


I get audited every single year from both my WC carrier and my GL carrier.

Only provide them with the information that they ask for and nothing else.

I prefer to have them meet at my accountants office and let him handle it. They speak the same language. It goes away quickly.

Last year, after my audit, I was assessed an additional $ 6,000.00 for the year being audited, plus an assumed $ 6,000.00 for the current year, based on the previous years records. This has happened before too.

If I am under the targeted amount for this year, I will get a rebate or I may choose to apply the amount to the next years fees.

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Old 03-31-2008, 03:20 PM   #5
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Re: Workman's Comp. Audit


Not sure if Fla. is the same as NY but we get audited every year. That's what determines the rate for the upcoming year.

Up here we need;

Payroll journal,

Quarterly reports,

General Ledger,

Insurance certs from ALL your subs including their W/C. If the sub doesn't have W/C then the auditor could assess you for the amount you paid them.

Nothing to worry about as long as your paperwork is in order. Good Luck
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Old 03-31-2008, 04:01 PM   #6
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Re: Workman's Comp. Audit


It is being triggered because I stopped my WC insurance. Does not make sense when I am the only person working in my company and I let go everyone else.

With the slow down in construction I am happy that the reserves are going to keep me busy for a while. Great for filling in the in between times.
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Old 03-31-2008, 04:03 PM   #7
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Re: Workman's Comp. Audit


Quote:
Originally Posted by mdshunk View Post
if any of your subs are one-man shows, the owner doesn't need comp on himself.
I just went thru a 2 year battle with swif and the attorney general over this , they tried to call a 1 man company in business for 30 years an employee, There is a test/questioneer weather they are subs or not . I won but after all the hassle my advice is if you use a 1 man shop if they arent incorporated or a llc dont use them.
This is unfair to sole propritorships and another example of how screwed up the commonwealth is,If there was a waiver to sign all this bs could have been avoided.
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Old 03-31-2008, 04:17 PM   #8
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Re: Workman's Comp. Audit


Quote:
Originally Posted by airborneSGT View Post
I am getting audited for Workman's compensation and had a few questions. The time period in question is when I had employees and a crew (yes I had a comp. insurance policy for this period). Now I am just a solo operation and sub everything out.

I am getting ready for my audit but would like any advice from people who have gone through similar situations. Hopefully some advice will keep me from a shotgun blast after the fact.
First, know what you're required to do under your state's law...
Here is a helpful link for information regarding what is expected of you from Florida's point of view. Pay close attention to the exemption requirements.

http://www.fldfs.com/wc/keycoverage.html

All subcontractors must provide you with some paperwork regarding their status of coverage.
"An employer in the construction industry shall require any sub-contractor who sub-contracts work from an employer to provide evidence of Florida workers’ compensation insurance. If the sub-contractor has a valid exemption, then the sub-contractor shall also provide a copy of his or her certificate of exemption to the employer 440.10 (c)."

If they have not, you will be billed for coverage for these folks at the rate the auditor decides.

Florida is an NCCI state, so you'll be audited under those rules.

Next, gather the stuff you will be required to provide during the audit...
You need to have a list of your subcontractors (ask your CPA for a list of your 1099 MISC recipients) for the period in question. This list should show how much you paid them for their services (material and labor). You will pay W/C insurance on the material costs passed on to you from these folks per NCCI rules. This is one of the hundreds of good reasons to stay on top of certificates of insurance from subs.

Call your subs now and get what they have sent to you ASAP...
You need copies of their certificates or waivers for the periods of time in which your W/C policy was in effect and your subs did work for you. If you can't show coverage for that time, then the auditor may decide it didn't exist and show you owe premiums for it.

Bear in mind, when you paid for W/C insurance at the start of your policy period, it was an estimated premium only. Now is when they get down to the actual costs, via the premium audit.

Gather up your payroll records...
If you had employees during the policy period, then you'll need payroll records showing withholding information paid to the state/feds for that time.

Also, you'll need payroll records showing how many hours were worked at different jobs that have different classifications. Otherwise, your employees will be put into the highest risk job classification they performed during that time.

That means if they mostly did interior trim, but then did 3 roof jobs, and you can't show payroll records where the actual time doing these two different jobs was recorded, then you will pay premiums for all of of the wages paid to them as if they were full time roofers. You also need to show what amount of wages was overtime, as opposed to regular pay, or you will wind up paying for overtime wages at the overtime pay rate. NCCI rules allow for premiums to be calculated at the normal pay rate for overtime wages.

Gather up your business formation records...
If you are a corporation, or an LLC or LLP, then you must show where your executive officers are listed in your business formation paperwork. Under NCCI rules, the owners wages are usually exempted.

Plan for next year now...
As you can see, this is a complicated area. I'm not sure, but it seems you will be required to have W/C insurance, even if you exempt yourself.

"An employer engaged in the construction industry that employs one or more part or full time employees or an employer in the non-construction industry that employs 4 or more part or full time employees must have Florida workers’ compensation insurance. Employee includes: Corporate officers, and for construction industry employers, limited liability company members 440.02(9), sole proprietors, and partners. Corporate officers, which for construction industry employers, include s a member of a limited liability company are eligible to elect to be exempt from the provisions of Chapter 440."

Check with an attorney that is licensed to practice law in your jurisdiction and is familiar with Florida W/C law to be sure and to get help to draft a subcontractor agreement that will require W/C and G/L coverage, as well as control who is allowed on your job site. I also recommend that you put something in there that says you will pay the first 40% of what you owe them without the certificate (if they say they have the insurance, if they don't, don't hire them) but the last 60% won't be paid until you have that certificate. Its getting really hard-assed, but just wait until you get done with this audit and decide just how cold-blooded it really is.

We have a good article on the basics of W/C insurance here, but it barely scratches the surface of this complicated subject.

GL and let us know how your premium audit turns out. Oh, and you can contact your auditor and let them know you need more time to prepare. They know its a complicated process and most are good folks to work with, just stubborn about doing their jobs well. They are paid by the insurance companies after all.
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Old 03-31-2008, 04:23 PM   #9
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Re: Workman's Comp. Audit


In FL you can not legally operate as a contractor sole proprietor if I am not mistaken. One man shops are still required to get a workman's comp exemption. This is something I do have already and required any of my small sub-contractors to provide this or comp. insurance. Bottom line is I did everything legally the right way and it cost me more than I made. So much for doing the right thing.

I got ripped off on GL and Comp. insurance and only found out after my second year. I consider it a costly learning curve. Now I just keep things simple. I would rather be a small time operation without all the headaches. When I can get into larger government and commercial contracts I will worry again about doing things the right way and incorporate that into my cost more effectively.

Its quite like professional racing; try to get away with as much as possible and only stop when you are caught. After seeing so many illegal practices of other much larger contractors it made me questions why I had ethics at all in business.
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Old 03-31-2008, 04:25 PM   #10
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Re: Workman's Comp. Audit


Double-A,

Thanks for the heads up. I have done most but not all of that and am very aware of my state laws. Following my state laws and doing things the right way is what cost me more than anything else. I learned quickly you have to bend slightly to make money in this business.
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Old 03-31-2008, 04:26 PM   #11
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Re: Workman's Comp. Audit


Yes I am going to see if I can get more time. After all I will be gone for who knows how long doing my reserve thing here shortly. Would rather be slightly more prepared. The last person who was going to do it and who I had planned on quit!
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Old 03-31-2008, 04:31 PM   #12
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Re: Workman's Comp. Audit


Quote:
Originally Posted by mdshunk View Post
I've never gone through one, but it has always seemed pretty clear that you need to have copies of proof of workmen's comp from your subs or you can end up paying retroactively for them if they were't covered. You might scramble and gather that paperwork from them if you don't have it on file already. Naturally, if any of your subs are one-man shows, the owner doesn't need comp on himself.
But, you still may need it for the company. Don't fool yourselves folks. If you're a one-man show, check with your state as to the requirements for having this insurance. Then check with an attorney to get their opinion. Do not trust what you're being told by others in your area, they might be just as confused as you are by all this.

Requirements vary from state to state. Don't assume you don't need W/C insurance because you're a one man show, especially if you hire casual employees or subcontractors. You are still required to have it in many states. Do your homework and find out what your state requires.

Pennsylvania, along with Delaware are unique in the way their classification systems work. One very glaring difference is that the premium portion of overtime pay is not excluded when figuring W/C premiums. That means you pay your W/C at the overtime rate for overtime pay. In an NCCI state, you would not necessarily do that.

As you can see, in Florida, you still must have it under most circumstances if you work in the construction industry. One-man show, or not.
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Old 03-31-2008, 04:38 PM   #13
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Re: Workman's Comp. Audit


Quote:
Originally Posted by airborneSGT View Post
Bottom line is I did everything legally the right way and it cost me more than I made. So much for doing the right thing.

I got ripped off on GL and Comp. insurance and only found out after my second year. I consider it a costly learning curve. Now I just keep things simple. I would rather be a small time operation without all the headaches.

Its quite like professional racing; try to get away with as much as possible and only stop when you are caught. After seeing so many illegal practices of other much larger contractors it made me questions why I had ethics at all in business.
Sounds like you got some bad advice somewhere down the line. When you decide to get back to the W/C and G/L, you should interview your agent and his company as well or better than you do your prospective employees. If you can't trust what they are telling you and doing on your behalf, then don't do business with them.

You might take a look at this post for some ideas on how to "interview" your agent.
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Old 03-31-2008, 04:47 PM   #14
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Re: Workman's Comp. Audit


Yes, doing "legititmate" business is now very expensive and costly. Only those contractors who are using illegals, hold no licences, or buy no insurance, etc... are proud of themselves making much more $$ than other .... while other legit contractors still sufffers the stiff competition with low-ballers.
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Old 03-31-2008, 04:56 PM   #15
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Re: Workman's Comp. Audit


I can't speak for Florida but in NY a sole prop. can skip the policy on a waiver. BUT, if I use him as a sub I can expect to pick up the tab on him based on the amount of work he did for our company. Anyone that receives a check from us and can't produce a certificate is required to be covered. We have to be careful with the records when purchasing tools and vehicles from individuals.

We get audited every year for both the WC and GL ins. Really a piece of cake if your prepared. Especially if your accountant handles it. Ours gets the next one.

Good Luck
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Old 03-31-2008, 06:14 PM   #16
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Re: Workman's Comp. Audit


my accountant does mine every year, never did it myself, never would
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Old 03-31-2008, 07:23 PM   #17
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Re: Workman's Comp. Audit


The best way to get yourself or a small shop insured through WC is to lease yourself to yourself. It sounds unusual but its allowed here in FL. There are ways your state can fine you very hefty if you are either not covered with W/C, do not have an exemption, or are using 1099's as employees.

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Yes I count the mistakes I made my first year as experience and hard learned lessons. In many ways the initial model I setup was more fitting for a farmer speculating on crops to be grown. I am now more of the on demand or as needed business model. Much lower overhead and still able to operate legally and effectively.

In the state of FL if you hire sub-contractors without the proper W/C insurance the GC is responsible by default for their costs. This goes likewise for under insured or un-insured. There is no way to dodge to bullet in FL if you are the prime contractor or GC for any particular project. I am sure many states follow suite.
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Old 03-31-2008, 07:43 PM   #18
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Re: Workman's Comp. Audit


Had a random audit in 2007. (Ohio) What a pain in the@##! They treated us like criminals. I will never be so helpful again....I will give them the info they need per the paper work, give them a cup of coffee and be on my way. Nor will I have my accountant available at the office.(Which I did in 2007) They just kept pushing and asked for more info. Funny thing happened in the end, they owed me a credit
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Old 03-31-2008, 07:50 PM   #19
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Re: Workman's Comp. Audit


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Originally Posted by kauser667 View Post
Had a random audit in 2007. (Ohio) What a pain in the@##! They treated us like criminals. I will never be so helpful again....

I will give them the info they need per the paper work, give them a cup of coffee and be on my way.

Nor will I have my accountant available at the office.(Which I did in 2007) They just kept pushing and asked for more info. Funny thing happened in the end, they owed me a credit
That is precisely why you supply only what is requested and have the audit take place at your accountans location. For smaller contractors, just a communication via fax with the accountant will do.

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Old 03-31-2008, 09:14 PM   #20
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Re: Workman's Comp. Audit


I have found it easiest to have a seperate bank account for your payroll so I can have all the checks written in a bank statement that the auditior can see. Second I will have my 941 federal returns on hand as back up if asked. And as for 1099s and subs If they dont have certificates for you prepare to pay for coverage on them. Most Workers Comp companies will adjust your premium when they see your last 2 quarters of your federal 941s. So if your company is slowing down you can adjust.

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