When it comes to avoiding surprises with insurance coverage and premiums, much of the responsibility is on the policyholders. The owner should report changes in payroll, locations and operations to their agent and insurer as soon as possible.
1. Payroll Changes: By far, unreported new employees and payroll changes are the top reason that businesses may owe additional premiums at the time of the final premium audit. Owners neglect to notify their agents or their insurance company of these changes. Workers’ compensation premiums are based on payroll and the workers’ compensation class codes assigned to employees, so any staff additions or subtractions can have a financial impact.
The simplest way owners can avoid unexpected changes in billed premium costs due to staff changes is to update their payroll estimates every 6 months and as changes occur during the policy period.
2. Operational Changes: New risks can mean a change in premiums. When your company changes what it does, it could impact the workers’ compensation class codes applied to your employees.
As a result, premium rates could change if there are new class codes. To help avoid surprises at the end of the year, notify your insurance agent ASAP.
3. Entity Type Changes: Any change of entity type must be reported to the insurer on or before the date the event occurs. This type of change occurs when a small business restructures its operations and changes its entity type. Take for example a sole proprietorship that incorporates.
There are specific, but widely varying laws in every state that mandate whether principals of a corporation are mandatorily subject to workers’ compensation coverage, are exempt from coverage, or have the ability to reject coverage. In certain states, a sole proprietor is exempt from coverage, but upon incorporating becomes subject to coverage and a premium charge.
4. Ownership Change: It is critical that all material ownership changes be reported to the insurance company on or before a change in ownership occurs so that the insurance company can review all the details and make sure proper coverage is in place going forward. A material change occurs when there is more than a 50% transfer of ownership for any one named insured. In most cases, new owners cannot assume the prior owner’s existing workers’ compensation policy and they must obtain new worker’s compensation policy.
For more information about workers’ compensation insurance, including workplace safety training contact us at 540-319-4229 or write us!
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