December 2, 2023

What Every Employer MUST Know About Workers Compensation Insurance. Part 3 of the 6 part series.

A “How to” Guide

My previous article dealt with the alarming fact that a large number of organizations have had their employees improperly classified for purposes of workers compensation insurance (Workers Comp Misclassifications Can Cost Employers a Fortune). The consequence of misclassification could mean that a business unknowingly paid far more in workers compensation premiums than they should have. Just think if you found out that your company overpaid and could be entitled to a refund? How could use this “found money”? This article will serve as a “How To” guide to see if your company has overpaid and deserves a refund due to employee misclassification. How you ultimately spend the money is up to you!

What information is necessary?

The first thing you need to do in order to conduct your self audit is to gather lots of documentation. You will need your workers compensation declarations pages, audit statements, experience rating worksheets, merit rating worksheets, loss runs, and running totals of premiums paid and attributable to workers comp premiums. Unfortunately, you will need this information for each policy year being audited. I would recommend auditing at least the previous 5 years worth of data. If you find a smoking gun in any of those 5 years, you may wish to audit prior years as well. One error can indicate past inaccuracies and can compound the effect of future mistakes.

How do I know if my classification code is right?

Once you have collected all this information, your work really begins. What you must determine is whether or not your organization was properly categorized based upon what it actually did during each policy period in question. To make that determination easier (in Pennsylvania), the Pennsylvania Compensation Rating Bureau (PCRB) has published a set of Standard Survey Instructions on its website ( This 85 page survey begins with some general questions about your organization and then moves into specifics regarding your particular industry. For instance, if you are questioning whether your business is properly classified as a Paper Products Manufacturer, the following is a list of the industry specific questions you would need to answer:

List, and provide percentages for, the raw materials and finished products.

Does the risk manufacture paper/operate a paper mill?

Provide a step-by-step description of the manufacturing process.

Does the risk provide contract paper services such as slitting, sheeting, winding, finishing, laminating, etc.? If yes, provide a detailed description of these services. List all equipment used in the risk’s manufacturing and/or processing operations.

As you can see, these are not for the most part “yes” or “no” questions and can take quite a bit of time to answer.

Where do I submit the results?

After gathering all your information, you are now ready to send it to the PCRB. Neither you nor your insurance company can just change your code. Your code change request must be approved and processed by the PCRB. There are very specific procedures that must be followed and are available on the PCRB website.

To go back to our paper products manufacturing example, let’s assume the PCRB determines your company should actually be classified as a distributor. We’ll also assume that the distributor class is less expensive. You can then begin to calculate (using all your assembled worksheets) the amount of your refund. Your insurance company will probably be willing to help you do these calculations but I would double check them anyway. You will also need to determine the number of years your company has been misclassified. Obviously, if you changed from a manufacturer to a distributor 10 years ago, your refund could be substantial.

So why aren’t more organizations doing this?

That’s a very good question! For one thing, even though a company could get a substantial refund, it can be a big project to handle internally. There is also no guarantee that any refund is due. Another reason is because many organizations just assume that all of their information is correct.

How can I learn more?

If you would like more information on how to determine whether your organization has been misclassified you can contact me using my information listed below. Our company is fully equipped to help you perform your own audit or you can outsource the entire project to us.

Are there any other places my insurance provider may have miscalculated?

Absolutely! That is why my next article will deal with how to ensure your experience mod is correct. An incorrect mod can cost you a bundle as well.