Penalties on Renewal of Employer Coverage

 

Purpose/Benefit

This policy addressesOAC 4123-19-07 .   It concerns timely renewal of coverage for private state-fund employers and public employer taxing districts (PECs).  Namely, it explains the terms for assessing penalties for lapsed policies.

 

This policy upholds BWC’s fiduciary responsibility to protect the Ohio State Insurance Fund by ensuring all employers pay their fair share of premium.  This further ensures that the system will continue to support coverage for work-related injuries, occupational diseases and deaths.

 

Prior to September 10, 2007 and passage of House Bill 100, PECs were exempt from attaining “lapsed” status.  This policy includes new requirements for PECs and updates provisions for private employers.

 

This policy does not apply to state agencies, state hospitals, or state universities and colleges.

 

Employers that do not report payroll on time or pay their premiums strain the system.  BWC takes this issue very seriously and will use all available avenues to collect payments from these employers.

 

 

Policy Effective October 17, 2008

 

Private Employer Renewal/Penalties

 

·        BWC will assess penalties and interest starting from the payroll report and premium due date.  Private employers that do not file their actual payroll and pay their premiums on time are subject to this assessment.

 

·        If a private employer fails to report actual payroll within two months after the end of the payroll period, BWC will increase the amount due by an amount equal to one (1) percent of the unpaid premium.  This increase shall not be more than fifteen dollars ($15) or less than three dollars ($3).

 

·        If an employer fails to pay such premium when due, BWC will add a late fee of not more than thirty dollars ($30.00) to the premium, plus an additional penalty as follows:

·        For a premium 61 to 90 days past due, the penalty will equal the prime interest rate multiplied by the premium due;

·        For a premium 91 to120 days past due, the penalty will equal the prime interest rate plus two (2) percent, multiplied by the premium due;

·        For a premium 121-150 days past due, the penalty will equal the prime interest rate plus four (4) percent, multiplied by the premium due;

·        For a premium 151 to 180 days past due, the penalty will equal the prime interest rate plus six (6) percent, multiplied by the premium due;

·        For a premium 181 or more days past due, the penalty will equal the prime interest rate plus eight (8) percent, multiplied by the premium due.

 

·        In spite of the interest rates listed above, at no time shall the additional penalty exceed fifteen (15) percent of the premium due.

 

·        As used here, “prime interest rate” means the average bank prime rate.  BWC shall determine this rate in the same manner in which a county auditor would (per ORC 929.02).  BWC will use the Federal Reserve Board’s H.15 Selected Interest Rates publication twice a year to determine the prime interest rate.

 

·        An employer may appeal a late fee or additional penalty through BWC’s adjudication process (ORC 4123.291 ).  BWC may certify the amount of premium due from such employer to the Office of the Attorney General of Ohio (AG) for collection.  BWC may still assess penalties on any premium the AG collects unless the AG agreement states otherwise.

 

·        Questioning a classification or rating is not a valid reason for an employer to delay premium payment.  In such cases, employers should pay the full premium due or request a payment plan from BWC’s collection unit.  That way they avoid the risk of lapsing coverage and adversely affecting their eligibility for BWC programs or discounts.  BWC sets up payment plans in conjunction with the AG.

 

·        Certificate of Premium Payment

·        Once an employer pays the full renewal premium, BWC will issue a Certificate of Premium Payment.  The certificate will list the employer’s dates of renewal and expiration of coverage.  Adjustments owed by the employer will not prevent BWC from renewing the coverage.

 

 

Public Employer Taxing District (PEC) Renewal/Penalties

 

·        BWC will assess interest starting from the premium due date.  PECs that do not pay their premiums on time are subject to this assessment.

 

·        ORC 4123.32 outlines the payment due dates for PECs.  These employers must pay at least 45 percent of the amount due by May 15 and any remaining amount due by September 1 of each year.  BWC will impose an interest penalty for late payment of any amount past due for each month or part of a month.   The state tax commissioner sets the interest rate per ORC 5703.47. 

 

·        An employer may appeal a late fee or additional penalty through BWC’s adjudication process (ORC 4123.291 ).  BWC may certify the amount of premium due from such employer to the AG for collection.  BWC may still assess penalties on any premium the AG collects unless the AG agreement states otherwise.

 

·        Questioning a classification or rating is not a valid reason for an employer to delay premium payment.  In such cases, employers should pay the full premium due or request a payment plan from BWC’s collection unit.  That way they avoid the risk of lapsing coverage and adversely affecting their eligibility for BWC programs or discounts.  BWC sets up payment plans in conjunction with the AG.

 

·        Certificate of Premium Payment

·        Once an employer pays the full renewal premium, BWC will issue a Certificate of Premium Payment.  The certificate will list the employer’s dates of renewal and expiration of coverage.  Adjustments owed by the employer will not prevent BWC from renewing the coverage.

·        BWC will issue a Certificate of Premium Payment per an employer’s payment plan.  If the employer misses a payment, coverage will lapse accordingly.

 

 

Policy Impact:

 

This policy impacts BWC and its customers in several important ways.

 

BWC Impacts

·        Affects procedures for handling lapsed employers in the Policy Processing Department.

·        Affects handling of lapsed employers and other procedures within the Account Receivable Department.

·        Customer Contact Center and walk-in employer areas within field office will need to be knowledgeable when renewing lapsed coverage.

 

Customer Impacts

·        Third Party Administrators (TPAs) and accountants who must advise employers about how to stay compliant or to reinstate lapsed coverage.

·        Employers that don’t report and pay their premiums on time.

 

 

Scenarios – Private Employers:  For purposes of these scenarios, let’s assume the average prime rate is 8 percent.  However, BWC will use the average prime rate in effect at the time of the premium payment to calculate actual penalties.

 

 

Scenario 1:  An employer reports actual payroll and pays BWC $1,000.  The filing is 67 days late.  For premium/payroll 61 – 90 days past due, the penalties include:  a 1 percent late reporting fee; a $30 late payment penalty; and the prime interest rate penalty.

·        One (1) percent of premiums on $1,000 (but not less than $3 nor more than $15) is $10

·        $30 (late payment penalty)

·        $1,000 times an 8 percent prime interest rate is $80

·        The penalty on the $1,000 premium paid 61 to 90 days late would be $120 ($10 + $30 + $80)

 

 

Scenario 2:  An employer reports actual payroll and pays BWC $1,000.  The filing is 91 days late.  For premium/payroll 91 to120 days past due, the penalties include:  a 1 percent late reporting fee; a $30 late payment penalty; and the prime interest rate plus 2 percent.

·        One (1) percent increase on premiums on $1,000 (but not less than $3 nor more than $15) is $10

·        $30 (late payment fee)

·        An 8 percent prime interest rate plus 2 percent equals 10 percent.  Ten (10) percent of $1,000 is $100

·        The penalty on the $1,000 premium paid 91 to 120 days late would be $140  ($10 + $30 + $100)

 

 

Scenario 3:  An employer reports actual payroll and pays BWC $2,000.  The filing is 91 days late.  For premium/payroll 91 to120 days past due, the penalties include:  a 1% late reporting fee; a $30 late payment penalty; and the prime interest rate plus 2 percent:

·        One (1) percent increase of premiums on $2,000 is $20.  But the increase cannot be less than $3, nor more than $15.  So the increase would be $15.

·         $30 (late payment penalty)

·        An 8 percent prime interest rate plus 2 percent equals 10 percent.  Ten (10) percent of $2,000 is $200.

·        The penalty on the $2,000 premium paid 91 to 120 days late would be $245 ($15 + $30 + $200).

         

 

Scenario 4:  An employer reports actual payroll and pays BWC $100.  The filing is 122 days late.  For premium/payroll 121 to 150 days past due, the penalties include:  a 1% late reporting fee; a $30 late payment penalty; and the prime interest rate plus 4 percent:

·        One (1) percent increase of premiums on $100 is $1.  But the increase cannot be less than $3, nor more than $15.  So the increase would be $3

·        $30 (late payment penalty)

·        An 8 percent prime interest rate plus 4 percent equals 12 percent.  Twelve (12) percent of $100 is $12.

·        The penalty on the $100 premium paid 121 to 150 days late would be $45 ($3 + $30 + $12).

 

 

Scenario 5:  An employer reports actual payroll and pays BWC $1,000.  The filing is 245 days late.  For premium/payroll 181 days or more past due, the penalties include:  a 1% late reporting fee; a $30 late payment penalty; and the prime interest rate plus 8 percent.

·        One (1) percent increase of premiums on $1,000 (but not less than $3 nor more than $15) is $10. 

·        $30 (late payment penalty)

·        An 8 percent prime interest rate plus 8 percent equals 16 percent.  But the penalty cannot be more than 15 percent of the premium.  So 15 percent of $1,000 is $150.

·        The penalty on the $1,000 premium paid 181 days or more late would be $190 ($10 + $30 + $150).

 

 

Scenario 6:  A sole proprietor with an active policy elects not to cover herself.  Her payroll is zero since she has no employees, but she must still file a payroll report and pay the minimum administrative fee of $50.  She forgets to do this on time and comes into the service office 15 days late to file the report and pay the minimum premium.  For premium/payroll less than 61 days past due include a 1 percent late reporting fee and a $30 late payment penalty.  The prime interest rate penalty does not apply unless the employer is more than 60 days past due. 

·        One (1) percent increase of premiums on $50 is 50 cents.  But the increase cannot be less than $3, nor more than $15.  So the increase would be $3. 

·        $30 (late payment penalty)

·        The employer is less than 61 days late so the prime interest rate penalty would not apply.

·        The penalty on the $50 premium that is less than 61 days late would be $33 ($3 + $30 + $0).

 

 

Scenario 7:  A lapsed employer pays both the first and second halves of its premium for the 2005 policy year.  BWC had previously estimated the premium and billed the employer at the 15 percent maximum penalty prior to this rule change.  At the time of the billing, the prime interest rate was 6.25 percent and 7 percent respectively.  In addition, the employer is now past due on the first half of it premium for 2006 and decides to pay it too.  The prime interest rate for the 2006 period is 8 percent.  Actual premium for each of these periods past due was $1,000.

 

BWC will recalculate the penalties for the three payroll periods using the most current prime interest rate and other applicable fees.  However, penalties for each lapsed period cannot exceed 15 percent.

 

Payment for the first half of 2005 was 365 days late; and payment for the second half of 2005 was 240 days late.  For premium/payroll 181 days or more past due, the penalties include: a 1 percent late reporting fee, a $30 late payment penalty; and the prime interest rate penalty.                           

·        One (1) percent of $1,000 (but not less than $3 nor more than $15) is $10

·        $30 (late payment penalty)

·        An 8 percent prime interest rate plus 8 percent equals 16 percent.  But the penalty can not be more than 15 percent of premium.  So 15 percent of $1,000 is $150.

·        The penalty on the $1,000 premium that is 181 days or more past due would be $190 ($10 + $30 + $150).

·        This means the employer would owe $380 in penalties on a total of $2,000 in premium for both halves of 2005:  $190 for the first half; and $190 for the second half.

·        The employer would also owe penalties for the first half of 2006.  This amount would depend on the actual number of days the payment is past due.

 

Note:  The 1 percent failure to report, the $30 failure to pay and the prime interest penalty all apply to each period past due.

 

 

 

Scenarios – Public Employers (PECs):  BWC will apply an annual interest penalty for late payment of any amount past due for each month or part of a month.  The state tax commissioner sets the interest rate per ORC 5703.47.  BWC will multiply this interest penalty by the amount due in each of the scenarios listed below.

 

 

Scenario 1:  A county pays 45 percent of its premium by May 15 as required by law.  But, the county does not make another payment until November 15.  This is 74 days beyond the September 1 due date for payment in full.  BWC renews the county’s lapsed coverage, but also applies the appropriate interest penalty.

 

 

Scenario 2:  A city reports and pays its premium by May 15.  BWC renews the city’s coverage on time.  Plus, the city will get a discount based on current U.S. Treasury bill rate and the number of days it paid prior to the September 1 deadline for full payment.

 

 

Scenario 3:  A township reports and pays 45 percent of its premium on June 1.  This is 16 days beyond the May 15 due date.  BWC renews the township’s lapsed coverage but also applies the appropriate interest penalty.