Workers’ Compensation insurance covers workers injured on the job. Mandated in nearly every state, Workers’ Comp pays for your injured employee’s medical bills, rehabilitation costs, a portion of lost wages, and/or even partial or permanent physical impairment.
According to the Occupational Safety and Health Administration (OSHA), common injuries in construction include slips, trips, and falls. Most slips and trips are caused by spills, leaks, or misplaced items. Most falls from heights occur due to improper mounting and dismounting from equipment, uneven surfaces, improper ladder use, and the lack of adequately employing fall protection equipment.
Injuries also occur from falling objects that strike a worker or workers’ striking against an object, being thrown into an object, or being caught between objects, among other causes. Electrocution is also a significant cause of construction-related worker injuries. Some of the biggest electrical hazards on job sites are faulty wiring, contact with live overhead power lines, improper use of extension cords, and contact with damaged equipment or power tools.
How Are Workers’ Comp Premiums Calculated?
Premiums for Workers’ Compensation insurance are calculated based on payroll, a class code rate, and the firm’s experience modifier, as well as any state taxes and fees.
The basis for your premium is your payroll. For each $100 of your payroll, there is a specific rate, which is determined by the classification codes of your employees, based upon the specific type of work they perform (clerical, sales, roofer, electrician, plumber, drywaller, etc.).
The Annual Workers’ Compensation Audit
When you purchase Workers’ Compensation insurance, you will provide your insurance company with your projected payroll for the coming year to help calculate the premium. However, by the end of the policy period, your payroll may be different than anticipated when you provided your projections. You may have hired more workers, added some clerical staff, or downsized.
A Workers’ Compensation audit will be performed at the end of the year to compare your current payroll with your estimates (or the results of the previous year’s audit). The premium will be adjusted for the policy term based on your actual payroll, ensuring that you pay for all the required coverage.
To prepare for a Workers’ Comp audit, it’s essential to have the following documentation ready: payroll records of all employees’ compensation and any changes in compensation over the last year; employee records, including each employee’s job description and class code; cash expenses; tax reports (W-2s, 1099s for all employees and independent contractors, Form 941, Form 944, and other federal tax return forms); and certificates of insurance for any subcontractors who have worked for you over the last year. If subcontractors do not have their own Workers’ Comp coverage, they’ll be included as part of your payroll.
You must get your payroll right, as it directly affects your Workers’ Comp premium. A payroll service can help you.
Why Use a Payroll Service?
Many payroll services use payroll data to calculate the premiums owed each payroll, ensuring that your Workers’ Compensation premiums are correctly calculated. This accuracy decreases the likelihood of underpayment or overpayment of premiums during audits. Payroll services can also help with the documentation you need during an audit. You can pull your payroll reports and tax forms via their online portals.
Using a payroll provider also allows employees to focus on other aspects of your business. The complexity of managing payroll internally necessitates significant resources and a thorough understanding of various regulatory compliance requirements, which can be a steep learning curve for many and time-consuming.
Additionally, you save on administrative costs associated with managing payroll, such as hiring additional staff or investing in specialized software.
Construction payroll can be complex. A payroll service can help with time-tracking, job and workforce costing reports, and Workers’ Comp.