Like an annual doctor’s physical, your workers’ compensation premium audit is meant to check up on the health of your policy every year and ensure you’re paying the right amount for the right coverage.

During the audit, your company’s payroll and job classifications will be verified. The best way to prepare is to have all your documents on hand, including certificates of insurance for subcontractors, and records of any changes to job roles since your initial premium estimate.

Our job is to help make this process go as smoothly as possible – including addressing all your questions. Kevin Steger, Premium Audit Technical Manager at Builders Mutual, discusses some of the most frequently asked questions that arise during workers’ compensation audits and ways you can set your company up for success.

Why do I have to pay workers’ compensation premium on an individual subcontractor that is not required to carry workers’ compensation insurance?

Each state’s workers’ compensation laws mandate an entity must purchase workers’ compensation insurance if they have a certain number of employees. If an entity has less employees than the set threshold, an entity is not breaking the law if they don’t have a workers’ compensation policy.

However, their employees still have rights to workers’ compensation benefits. These benefits will be the responsibility of their employer, or the entity the employer is working for, if they are not working for themselves. Even though the law does not mandate that they must purchase a workers’ compensation policy, they can still purchase one. When you hire an entity or individual that does not have a workers’ compensation policy, and they are injured at your job-site, they can file a claim with your workers’ compensation insurance carrier. To protect yourself, you can insist that all your subcontractors provide their own workers’ compensation certificate of insurance prior to visiting your job-site.

Why are some subcontractors treated as uninsured on a general liability audit even though they have general liability insurance?

Per general liability payroll inclusion rule 24.E.2 published by the Insurance Services Office, Inc, payments to the following types of subcontractors will be included as uninsured on your general liability audit, even if these subcontractors have general liability insurance. This is because of the direction and control you have over these subcontractors.

1. Crane with operator. You tell them what to lift and where to place it.
2. Concrete pumping. The concrete pumping subcontractor does not decide what type of concrete to use, the amount of concrete to use, or where to place the concrete.

Note: Items 1 and 2 above will be included at 33.33% of the amount paid the subcontractor; the 66.67% discount is for the equipment expense.

1. Temporary agencies. You have full direction and control of temp agencies’ employees.
2. Leased employees. You have full direction and control of leased employees.

Note: Items 3 and 4 above will be included at 100% of the amount paid to the temporary agency and employee leasing company, because they provide labor only.

You may avoid the uninsured general liability exposure caused by using crane with operator and concrete pumping contractors by using insured subcontractors that hire and pay the crane with operator or concrete pumping contractors. The insured subcontractor will incur the additional uninsured exposure of using the crane with operator or concrete pumping contractor. The payments you made to the insured subcontractor will be assigned to the appropriate insured subcontractor classification.

Example: ACME Home Builders hires and pays Concrete Brothers, an insured concrete contractor, to perform all the concrete work at their home building site. Concrete Brothers hires and pays Gotham Concrete Pumping to pump the concrete. Since ACME Home Builders only paid the concrete finishers, Concrete Brothers, those payments will be assigned to the applicable insured subcontractor classification.

Additionally, ANY subcontractors that do not have the following required general liability limits will be

considered underinsured, and treated as uninsured:

1. If your policy has a prefix with the letters CPP or PCP, your subcontractors must have general liability limits equal to or exceeding $300,000 for Each Occurrence and $600,000 for General Aggregate & Products – Complete/Operation Aggregate.
2. If your policy has a prefix with the letters CPA or PPA, your subcontractors must have limits equal to or exceeding our policyholder’s general liability policy limits.

Note: If any of the above subcontractors have workers’ compensation insurance, they will be excluded from the workers’ compensation audit. There are no required workers’ compensation limits for subcontractors. If a subcontractor has workers’ compensation insurance, they will be treated as insured regardless of the policy compensation limits.

Why is the clean-up of a newly constructed building assigned to a construction class code rather than the janitorial class code?

The janitorial classifications are only for businesses that primarily provide janitorial services for others. When a business whose work is not providing janitorial services for others hires another business to perform janitorial services, that janitorial exposure is assigned to the classification that has the most exposure assigned to it at that job-site or location. Employee payroll and uninsured subcontractor payments will determine what classification has the most exposure assigned to it. Job-site debris pick-up is also assigned to the classification with the most exposure and not to the debris pick-up classification. This is because the debris pick-up classification is also only for businesses that primarily provide debris pick-up services for others.

Why are construction supervisors assigned to a construction code rather than the executive supervisor code?

The executive supervisor classification has two qualifying components. First are the job duties of the supervisor and second is the mandatory presence of a “buffer” at the job-site whenever the executive supervisor is visiting a job-site.

NCCI states that for an employee to qualify as an executive supervisor, there must be a full-time employee working at the jobsite who acts as the “buffer” or “middle-man” between the executive supervisor and the individuals completing the construction work at the jobsite. When the executive supervisor visits a job-site with working employees, there must be a minimum of three employees present at that job-site: the executive supervisor, the buffer, and the working employee.

Key points for the use of the executive supervisor classification:

1. When employees perform job-site labor, there must be a full-time employee buffer present whenever the executive supervisor visits the jobsite. A subcontractor cannot provide a buffer for an employee.
2. An individual cannot be their own buffer.
3. If there is a full-time employee buffer, this buffer can also serve as the buffer for the subcontractors.
4. If you have no employees working at a job-site, each subcontractor must provide their own buffer unless you have a full-time employee buffer at the job-site.
5. A subcontractor cannot provide a buffer for another subcontractor or for your employees.
6. Executive supervisors work from an office or job-site trailer and visit job-sites in a communication role only. They cannot perform any job-site physical labor.

Why are there two charges for some general liability class codes?

Many general liability classifications have two charges/rates:

1. Premises/Operations Coverage
2. Products/Completed Operation Coverage

Premises/operations coverage applies to liability exposure arising from the business location (premises) and the business activity (operations).

Products/completed operations coverage applies to liability exposure arising from merchandise sold (product) and work performed (completed operations).

While the work is being performed, coverage is provided by the premise/operations part of the liability policy. When the work is completed, coverage is provided by the products/completed part of the liability policy.

If you have additional questions about the audit process, we’re here for you. Contact your Builders Mutual audit specialist to learn what key information you need for your audit to be as productive as possible.