WC FAQs: Your Most Common Payroll Reporting Questions Answered

Estimating accurate Workers’ Compensation premiums for seasonal businesses, clients with fluctuating payrolls or businesses with frequent changes to employee responsibilities can be tricky.  One of the most frequent questions that retail insurance agents ask an All Risks Workers’ Comp broker is, “How will payroll reporting affect my client’s Workers’ Compensation premium?”  In this post, we will explain how traditional payroll reporting works and two easy payroll reporting options offered by most Workers’ Compensation insurance carriers.

How does traditional payroll reporting work?

A traditional payment plan generally involves a deposit and a number of installments based on premium generated from an insured’s estimated annual payroll amounts per class code.  Insureds report actual payrolls each month to their Workers’ Comp carrier either online, over the phone, or via a manual form.  Reported amounts within each class code are multiplied by the net rate agreed upon at binding.  The actual premium will generate for the insured to pay accordingly.

Traditional installment pay plans do not take into account the following:

  • Incorrectly estimated payrolls: If payrolls are overestimated, the insured will overpay throughout the term.  If payrolls are underestimated, the insured will owe more premium at audit.
  • Employees who change roles within the company: If proper records are not kept, an employee may be placed in the highest rated class that applies.  This is another issue that can arise at audit.
  • Fluctuating payrolls: Monthly installments are divided equally, even though amount of work may not be equal each month.
Maintaining a company’s payroll information can be a tedious manual task for business owners and retail agents.  If payroll is reported incorrectly, it can result in unexpected changes and negatively impact a Workers' Compensation premium in one of two ways.  If payroll is under-reported, there is potential to receive a hefty audit bill after the policy expires.  If payroll is over-reported, a company’s financial flow may be hindered until the over-payment of funds can be recouped in an audit.

If eligible, your insureds can avoid payroll headaches
by signing up for one of two easy payroll reporting options!

1. Monthly Self-Reporting - For smaller businesses
    • Monthly Self-Reporting helps to ensure that the monthly premium due correlates to the actual exposures incurred for each pay period.  Invoices are based on actual payroll and insureds will self-report their payrolls each month.  Carriers vary in how they collect the data, but generally it is submitted online, called in over the phone, or submitted via a manual form which is mailed/faxed to the carrier.

    • Insureds have control month-to-month regarding when payroll is submitted, and therefore, when premium is drafted.  This can help to open up additional cash flow for other business operations.

    • Deposit: This plan generally requires a premium bearing deposit, which is either used as the insured's 12th month’s payment or as part of the final audit.  Deposits can typically be rolled to renewal, if insureds stay with the same carrier.  They would just report their 12th month normally.
2. Payroll Vendor Reporting - For larger businesses
    • Insureds authorize a payroll vendor to report on their behalf.  Carriers will have a list of approved vendors, so the insured must use one from the list.  The vendor provides statements to the carrier following each pay period and premium is automatically calculated based on the statement provided.

    • Typically, direct draft is required for this payroll plan.  Once the premium is generated, the insured’s bank account will be drafted accordingly.

    • Deposit: This payroll plan may allow for a reduced deposit. In certain cases, $0 is due at bind!

Benefits of both payroll reporting options include:

  • Faster, easier payroll calculation with less chance of errors
  • Reduced variation in premium at audit
  • Helps to improve cash flows for policyholders with fluctuating payroll
  • Assists in budgeting and financial planning for both employer and employee
  • Typically lower deposits offered
  • Better record keeping

Who is Payroll Reporting best suited for?
Payroll Reporting is perfect for any business with fluctuating payroll or seasonal businesses that generate varying amounts of payroll at different times of the year.  Some common industries are:

  • Contractors
  • Healthcare
  • Agriculture
  • Trucking

If you'd like more information regarding payroll reporting or additional details about which option is best for your insured's specific needs and goals, please reach out to your local All Risks Workers' Compensation Underwriter at 800-366-5810

Download the Payroll Reporting Guide to keep as a reference!

Download the Guide>>


Legal Disclaimer: Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.