Preparing for a Workers’ Compensation Audit

Just the mention of a workers’ compensation audit can stir up the butterflies in your stomach and add a serious dose of stress to your existence.

But, if you are scheduled for an audit, there is no need to dread it. A small amount of preparation and common sense can save you a lot of aggravation and money.

Timing
Devoting a few hours of effort now can save you a lot of time in the future. Give your full attention to the auditor and remain with them throughout the entire process. The process may take a couple of hours to complete, so make sure that the time and date of the scheduled audit are convenient for you. Call to reschedule the audit if it has been scheduled at an inopportune time.

 

Documentation

As soon as you learn about the audit, begin to collect and organize:

  • Payroll records,
  • Overtime payroll records,
  • Classification divisions, and
  • Insurance certificates.

 

This should give you plenty of time to compose a summary of each, which will help you to better communicate important data during the audit process. Information that is well organized will also expedite the process. If you can reconcile your calculations to payroll records, such as W2s and payroll stubs, the auditor might be more comfortable trusting your data.

You will also want to make any needed adjustment to payrolls; for example, subtracting bonus pay from overtime pay.

If applicable, you will need to apply the maximum and minimum payrolls to the calculations. This part may take a little research, since the minimum and maximum will vary based on state, career, and even among sole proprietors, partners and executive officers.

 

Classification and subcontractors

Before the audit, review the different employee job classifications and make sure that each person is correctly classified.

This is a key element to ensure that the audit flows smoothly. If there’s any question about how to classify an employee, call us. The auditor is most likely going to ask you about the classification and job duties for multiple different employees, so be prepared and armed with knowledge.

One last important preparation concerns subcontractors. Payments issued to subcontractors can go against your workers’ compensation in the event that the subcontractor did not have a certificate of workers’ compensation.

You can get a copy of the certificate, but make sure that it is current and shows coverage during the time the subcontractor worked for you.

 

D-day

Once the audit arrives, you’ll be glad that you took a little time collecting, organizing and summarizing your information. You will also find that the auditor is not a nemesis, especially when you provide honest answers and organized paperwork.

At the conclusion of the audit, ask the auditor for the audit worksheet. Then ask us to review the accuracy of the final audit.

You have a legal right to ask for a corrected audit anytime you think there were any errors. If any overpayment was made under the last three preceding audits, you also have a legal right to recover it.

 

Do You Need Workers’ Comp Coverage for Family Members?

One question we get often from small business owners is whether they have to secure workers’ comp coverage for family members that work for them. The short answer is “yes,” in most cases.

Under California law, every employer in the state that uses employee labor, including family members, must secure workers’ comp coverage, as per California Labor Code Section 3700. When we talk about family members we usually mean children, spouses, nieces, nephews, uncles, aunts, grandparents and cousins.

If you fail to include a working family member on your workers’ comp policy, you could risk a fine, so it’s wise to understand the regulations.

Here are a few scenarios:

Your nephew helps in your business for a few hours a day, but you don’t consider him an employee. – Under labor law he is considered an employee. An “employee” is defined as someone you engage or permit to work. Even though your nephew is part of your family, he is considered an employee and hence must be covered by workers’ comp insurance in case he is injured on the job.

If the state finds out that you don’t have the necessary workers’ comp insurance, you could face serious consequences including fines ($1,500 per employee or twice the amount you would have paid in insurance premiums, whichever is more) and even misdemeanor charges.

Also, if your nephew got hurt at the store, he (or his parents) could file a personal injury lawsuit against you if you don’t have him covered on your policy.

You run a diner and your daughter works 25 hours a week in the kitchen< – Your daughter would be considered an employee subject to workers’ comp laws and she would not be able to be excluded on your workers’ comp (unless of course she was an owner/officer, member or partner).

You have a small business and your husband helps out about 10 to 15 hours per week – Your workers’ comp policy may not have to cover you and your husband.

But it could depend on whether your business is a sole proprietorship (which can be owned by a married couple in California), a partnership or a limited liability company.

If you are a married sole proprietor, in the state of California, typically your insurance company will consider your spouse a co-owner and exclude them without any question. But different insurance companies will handle this situation differently, so it’s important to know how yours handles it.

If you’re a corporation, LLC or partnership, your spouse cannot be excluded merely because he/she is your spouse. If you formed a corporation, your spouse would have to own shares and be a titled officer in the corporation in order to be excluded.

If you formed an LLC, your spouse would have to be member of the LLC in order to be excluded. If you formed a partnership, your spouse would have to be one of the partners to be excluded.

 

 

Vacant Buildings Pose Risks, Insurance Challenges

According to the website Statista.com, the average 2018 average vacancy rate for offices nationwide was to 12.2%, while 12.1% of retail spaces and 7.8% for industrial spaces were vacant.

Unfortunately, when buildings stand vacant they become susceptible to a variety of problems.

There are approximately 31,000 fires in vacant buildings annually, resulting in dozens of deaths, hundreds of firefighter injuries, and an average $642 million in property damage.

Vacant buildings receive little or no maintenance, attention, or security. This can lead to problems such as:

  • With no security on the premises, the building becomes a target for vandals. Vacant buildings frequently wind up with broken windows and graffiti-covered walls.
  • Fixtures and materials inside the building, such as copper piping, may attract thieves.
  • Vacant buildings can become convenient hang-outs for young people or shelters for homeless people; they also can become centers of criminal activity such as drug dealing.
  • Trespassers smoking on the premises, decayed wiring, arson, and production of illegal drugs like methamphetamines may cause fires in vacant buildings. In addition, automatic sprinkler systems may be shut off, allowing fires to spread, and lack of security prevents early detection.
  • Toxic substances remaining on the premises may leak and contaminate soil and groundwater.

 

Owners of vacant properties can take many steps to prevent these problems or make them less likely.

  • Visit the property at least weekly or hire a property management company to do so.
  • Clear the exterior of the building of scrap wood, paper, cardboard, and brush.
  • Remove any toxic substances that could contaminate the area or harm police or firefighters.
  • Maintain sidewalks and parking areas in good condition, and clear them of snow and ice.
  • Erect obstacles to keep vehicles and pedestrians out of the parking areas.
  • Hire security guards to watch the building at night and have exterior lighting turned on.
  • Maintain the heat or drain the plumbing system to keep pipes from bursting, but maintain at least a minimum temperature in areas protected by automatic sprinkler systems.
  • Maintain electricity to emergency lighting and exit signs.
  • Shut off utilities except where necessary to power desired lighting and alarm systems.
  • Maintain fire detection systems and link them to a central station monitoring service.

 

Insurance implications

Buildings that are more than 70% percent vacant for more than 60 days also lose some important insurance coverage. If the building is largely vacant, the standard commercial property insurance policy reduces loss payments by 15% for most causes of loss and does not cover others at all, including vandalism, water damage, glass breakage, and theft.

For an additional premium, the building owner may be able to purchase vacancy permit coverage which reinstates some or all of this coverage for a specific period of time. An alternative, vacancy changes coverage, can reduce the minimum occupancy that the building must have before the insurance company will consider it vacant from the standard 31%. We can work with you to get the coverage you need.

A vacant building is never a good situation, but with the proper precautions, the owner can maintain its value and keep it secure until new tenants move in.

 

Smartphones and the Wage and Hour Dilemma

Do you ever wonder if your non-exempt employees are sneaking a peek at work e-mail off the clock? Ever suspect their bosses of pressuring them to respond to calls and e-mails after the workday ends?

If those thoughts keep you up at night, it’s time to make sure your employees’ smartphones aren’t putting your organization at risk of violating wage and hour laws.

The proliferation of smartphones has led to a rapidly rising number of lawsuits by employees claiming they were required to work uncompensated on evenings and weekends when not on the clock. The lawsuits are often class actions stemming from overtime-eligible employees using smartphones to extend their workday without those after-hours tasks being compensated.

The problem for employers is that when one employee complains to the Labor Department that they are not being compensated for time working on their smartphones when away from work, the agency’s investigators won’t stop with the complaining employee. They also look at how many others are “similarly situated.”

A single employee’s complaint can turn in to a class action when all the other similarly situated employees are included.

Just a few minutes a day over months or years can add up to financial disaster if an employer has a number of employees regularly using their phones for uncompensated work.

In the last several years, the courts have seen a flood of lawsuits in which groups of employees claim the time they spend reading and responding to e-mail should be considered work time, and therefore paid.

The danger is that when a boss sends a worker a message off-hours and asks them to read something or send an e-mail, the employee will usually feel compelled to do as they’re told, even if they don’t want to. It’s unlikely a subordinate will refuse to a superior for many reasons, such as job security and also advancement possibilities. Who wants to look lazy when the go-getters are the ones who are recognized?

Employees often are expected to check their work e-mail, and it’s not too much of an overstatement to say many employees today are under pressure because they are required to respond to after-hours messages.

You might think that just a few minutes of after-hours work won’t cause a problem because the time is minimal. But when employees sue claiming they should be compensated for after-hours smartphone work, the employer typically uses the de minimis defense.

De minimis means very little, perhaps just a minute or two. The employer maintains that the time spent is de minimis, but it isn’t. Just five minutes a day adds up to almost a half hour a week. But there are precedent-setting court decisions that have said that even 30 minutes extra a week is not de minimis.

Also, besides federal law, you have our own state law to contend with.

Additionally, you may not even know that some employees are checking work e-mail at home whether they’re told to or not.

Just because the employer doesn’t require employees to stay tied to their phones doesn’t eliminate legal risk. The law defines work time as the time an employee is “suffered or permitted” to work.

So, an employer doesn’t have to require employees to answer e-mail and perform other tasks off the clock to run into trouble. Merely permitting that work without counting it as compensable time, puts the employer at risk.

 

What should you do?

The extension of work time made possible by smartphones and other electronic devices poses a new danger for employers.

To ensure you don’t’ find yourself the target of a wage and hour lawsuit, you need to put in a place a solid policy about non-exempt employees working on their smartphone after hours.

You should put the policy in place, communicate it to your staff in a meeting, as well as include the policy in your employee handbook. Passing out a memo on the matter is also helpful.

Once the policy has been communicated, you have to monitor and survey staff to make sure they are not breaching the rules.