Policy Name:	Premium Audits
Policy #:	EP-16-07
Code/Rule Reference	Ohio Administrative Code (OAC) 4123-17-04, 4123-17-08, and 4123-17-17.
Effective Date:	January 4, 2023
Approved:	Rex Blateri, Chief of Employer Services
Origin:	Employer Policy
Supersedes:	Audit Protest policy dated October 17, 2011.
History:	New policy issued January 4, 2023.
Review Date:	January 4, 2028

 

 

I.      Policy Purpose

 

The Ohio Bureau of Workers' Compensation (BWC) conducts premium audits of employers to verify the accuracy of payroll reporting and the appropriate use of National Council on Compensation Insurance (NCCI) classification codes applicable to Ohio.

 

II.    Applicability

 

This policy applies to BWC Underwriting and Premium Audit, private employers (PA employers), public employer taxing districts (PEC employers), and their authorized representatives.

 

III.   Definitions

There are no policy-specific definitions.

IV.  Policy

A.    BWC rights.

1.    BWC has the right to audit an employer to verify the correctness of reports made by the employer as required by law.

2.    BWC has the right to adjust classification codes, allocation of wage expenditures to classification codes, amount of wage expenditures, premium rates, and amount of premium.

B.    Employer responsibilities.

1.    Every employer amenable under Ohio workers’ compensation law must maintain complete records showing in detail all expenditures for payroll reportable to Ohio and the division of such payroll to the various classification codes of an employer’s business.

2.    An employer, who elects to obtain other-states coverage pursuant to ORC 4123.292, must keep records of all payroll reported to the other-states insurer for work performed outside of Ohio.

3.    An employer who covers employees with an insurer providing federal Longshore and Harbor Workers’ Compensation Act coverage must:

a.    Report payroll to BWC for work the employees performed in Ohio for which they are eligible to receive Ohio workers’ compensation benefits; and

b.    Keep records of all payroll reported to the insurer providing the federal Longshore and Harbor Workers’ Compensation Act coverage.

4.    The employer must preserve all payroll records for at least five years after the respective time of the transaction upon which such records are based.

5.    The employer must keep available for inspection by BWC all books, records, and documents reflecting the amount and classification codes of the employer’s payroll expenditures.

6.    If BWC assigned two or more classification codes to an employer's operations, the employer must keep a record showing a correct and verifiable allocation of all payroll into each classification code. If the employer failed to keep such record, the part of payroll which cannot be reasonably determined by BWC will be assigned to the classification code having the highest rate, and the employer will be assessed premium accordingly.

7.    An employer must make available to BWC payroll records, state and federal tax forms and schedules, Ohio Department of Jobs and Family Services quarterly tax filings, and federal unemployment forms 940 and 941.

8.    BWC may request the employer provide other records, such as corporate minutes, business contracts, and invoices.

C.   BWC premium audits.

1.    BWC audits employers to verify the proper classification of business operations and ensure accurate payroll reporting,

2.    An employer who may have overreported payroll, or believes its operations are misclassified, may request an audit.

3.    Generally, BWC follows the guidelines of Medicare wage reporting, with exceptions involving the construction industry and corporate officers. Information regarding what items BWC considers payroll and who is reportable can be found on BWC’s website.

4.    BWC reviews employer records to confirm the employer accurately reported all payroll to the proper classification code(s). BWC will:

a.    Review the employer’s financial records to confirm all wages were correctly reported to the proper classification codes;

b.    Verify the duties of the employees;

c.     Compare what the employer reported to other state and federal reporting agencies to what the employer reported to BWC;

d.    Review claims assigned to the employer; and

e.    Verify anyone paid as an independent contractor is an independent business and not an employee. Issuing an IRS form 1099 does not necessarily mean the recipient is an independent contractor for workers’ compensation payroll reporting purposes.

5.    BWC will share findings with the employer at the end of the audit.

a.    BWC will provide the employer with instructions for proper payroll reporting and a letter of instruction for future reporting.

b.    BWC will have the person who supplied the information for the audit sign the audit findings letter confirming that the description of the employer’s operations are accurate and complete. The signer will also acknowledge receipt of the audit findings letter and understanding of its content and purpose. The signature does not mean the employer agrees or disagrees with the audit findings.

c.     BWC does not finalize the audit findings at the time of the audit. BWC conducts a quality review process after the audit to ensure consistency with BWC policies and procedures. The employer’s monthly invoice will indicate when BWC processed the audit and the financial results of the audit.

6.    BWC may modify an employer’s estimated annual premium (EAP) based on an audit.

D.   Resolution of complaints.

1.    An employer who disagrees with the results of a BWC audit must file a complaint within two years of the date the employer received the audit findings.

2.    BWC has identified certain scenarios that are common to the audit process.

3.    BWC will review the employer’s complaint and make a determination using the scenarios outlined in section IV.E of this policy.

4.    BWC will approve or deny the employer’s complaint. If the employer’s complaint is granted, BWC will revise the audit as appropriate.

5.    BWC staff who process an employer’s complaint must obtain management level sign-off on each recommendation to approve or deny the employer’s request for relief.

E.    Scenarios.

1.    If the complaint is related to the classification codes assigned to the employer, BWC will:

a.    Verify the appropriate classification codes were assigned by using the NCCI categories that are applicable to the state of Ohio. See the Classification Assignments policy for additional information.

b.    Revise the audit and approve the employer’s complaint if the employer’s complaint has merit.

2.    If the complaint involves finding independent contractors are actually employees, BWC will use the following steps.

a.    BWC will determine if the reasons for finding the workers as employees is well documented in the audit and the audit shows direction and control of the workers resided with the employer.

b.    BWC will use the criteria set forth in ORC 4123.01(A)(1)(c) and the Independent Contractor/Employee Questionnaire (UA-2) as a tool when a construction contract is at issue. Documentation must show the factors on the UA-2 which demonstrate the workers were employees and not independent contractors.

c.     For non-construction industries, BWC considers an independent contractor an employer, and not an employee, when the independent contractor controls the means and methods of the work. Factors BWC will consider, include, but are not limited to:

i.      Work hours;

ii.     Work processes and procedures;

iii.    The entity furnishing material and goods:

iv.   Method of payment for the work, and whether payment is by the hour, day, or job;

v.     Whether the work was performed outside the employer’s regular business;

vi.   Whether the contractor had expenses and can incur a profit or loss; and

vii.  Whether the contractor has an investment in the business and is not merely providing labor.

d.    BWC will review claims filed, but no payroll reported for an injured worker (IW), and use the following guidelines.

i.      If the employer has certified the claim, the IW’s wages are reportable.

ii.     If the Industrial Commission of Ohio (IC) rules the IW is an employee, BWC is bound by this order. The IW’s wages are reportable. However, BWC will make an independent determination whether other contractors are employees.

iii.    If the employer does not appeal a claim allowance for an independent contractor and the claim subsequently becomes allowed, the IW’s wages are reportable.

iv.   If the employer rejects a claim and the claim is denied by the IC, BWC is bound by this order. The IW’s wages are not reportable. However, BWC will make an independent determination whether other contractors are employees.

3.    If the complaint involves wage allocation, or a dispute over a classification code assigned to certain employees, BWC will review the employer’s position and based on this information, the audit may be wholly or partially revised.

4.    If the complaint involves the application of a procedure, for example, ordinary income for the officer of an S corporation, BWC will:

a.    Ensure the audit followed the procedure appropriately.

b.    Use Ohio Labor Market Information if, in the example above, there is doubt about a reasonable wage for the officer of an S corporation.

5.    If the complaint involves a policy, for example, the minimum payroll reporting requirement for a sole proprietor who has elected coverage, BWC will ensure the policy has been applied correctly. See the Minimum and Maximum Private Sate Fund Payroll Limitations policy for additional information.

6.    If the complaint involves a request for premium relief from the financial burden of the audit, BWC will:

a.    Communicate to the employer the audit followed applicable rules and policies; and

b.    Refer the employer to the Premium Relief Request policy.

7.    If the complaint involves a sole proprietor, partner, or individual incorporated as a corporation with no employees (ICORP) who has reported wages, but not elected coverage, BWC will:

a.    Advise the sole proprietor, partner, or ICORP there was an intent for coverage and BWC will not refund premiums in this situation; and

b.    Refer the employer to the Elective Coverage and Minimum and Maximum Private Sate Fund Payroll Limitations policies.

8.    If the complaint involves a temporary labor services agency (temp agency) and the proper classification code of temp agency employees assigned to clients, or the proper payroll reporting and record keeping for a BWC premium audit, BWC will ensure the temp agency and the audit followed the guidelines in the Temporary Labor Services (Temp or Staffing) Agency policy.