In the world of human resources (HR) and payroll, it’s not uncommon to have unexpected situations arise. One such situation is an increase in workers’ compensation premiums without notice. This unfortunate surprise can put a strain on companies, leaving them scrambling to find additional funds to cover these costs.  


Workers’ compensation is an insurance that provides wage replacement and medical benefits to employees injured at work. It is a legal requirement for almost all businesses in the United States, and the cost of this insurance can be substantial. 


Those managing payroll and HR need to understand why this situation can occur, as well as how to mitigate the effects of such increases. Our workers’ compensation experts at Vested HR explain.  

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Why Would My Workers’ Compensation Premiums Increase?  


Insurance companies will carry out a final premium audit at the conclusion of a workers’ compensation policy’s term.


During the audit, the insurer will review the: 


  • Named insureds 
  • Payroll records such as overtime payments, federal tax returns, state tax returns, and state unemployment tax reports 
  • Certificates of insurance for subcontractors or contractors 
  • Job classifications 
  • Cash disbursements for subcontractors, materials, or labor 
  • Description of business operations  


The insurance company wants to ensure that their estimates match your actual payroll, which is why they are requesting these documents. Further, if any subcontractors that you use are not actively insured, you will likely be charged an extra insurance premium to cover them.  


Once the audit is completed, your insurer might charge you more than the previously agreed-upon final premium amount to account for any unreported business changes.  


The best way to avoid these surprise costs is to report any  

major changes in your business to your insurer as they occur.  


Reasons for Premium Increases  


Was it payroll? Something in operations? Our company ownership…Honestly, updates to your premiums can come from multiple avenues. Let’s take a closer look at some reasons why your workers’ compensation premiums might change after an audit.  



Changes in Payroll 


One of the main reasons why firms face higher premiums at the time of their final audit is unreported payroll changes. This typically occurs when a company increases its payroll by hiring more employees but fails to notify its insurer of the change.


Because workers’ compensation rates are heavily influenced by a company’s payroll and the class codes given to each employee, this could be a problem. Workers’ compensation expenses for a business change in direct proportion to every new or removed employee.


Make sure to record any personnel changes that take place throughout your policy period so you don’t have to make additional payments after your audit.


Operational Changes  


The workers’ compensation class codes that are used for its employees may change if a company changes what it specializes in. These class codes must be precise and current because they have a direct impact on the cost of workers’ compensation insurance, as was already mentioned.


Again, this is the reason it is crucial to let your insurance company know about any changes to your company’s operations. This will prevent you from experiencing substantial workers’ compensation changes in the future.


Ownership Changes  


Any change in the ownership of your company may have effects beyond an increase in workers’ compensation premiums. For this reason, you must notify your insurance provider of any ownership changes before they take place.


This enables your insurance provider to examine the information and guarantee that your firm is properly covered moving forward.


The workers’ compensation insurance policy of a prior owner is frequently not transferable to new owners. They will need to secure a new policy once they become owners.  


Read More > What is a Workers’ Compensation Audit & How Can it Affect You?  

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Don’t Be Surprised By Workers’ Comp Premium Increases 


When you work with a Professional Employment Organization (PEO) like Vested HR, our team will ensure that you are compliant with all workers’ compensation requirements as you grow, hire employees, or make changes to your business operations.  


We are in(Vested) in your success! Lean on our skilled HR professionals at Vested HR for workers’ compensation, payroll management, and more.  


We support businesses nationwide; contact us for a business evaluation today!