Workers’ Compensation, Payroll, Deductibles, Classification System Codes
A professional employer organization (PEO) is a company that contracts with an employer to outsource functions, most commonly – payroll and workers compensation. Other outsourced functions can include employee benefits, training and safety. The PEO hires the employer’s employees, with the PEO then becoming their employer for tax purposes and insurance purposes. There are well over 500 PEOs in the United States. In terms of applicable workers compensation background, I have served or am serving in the positions listed below, among others. (See also my workers’ compensation expertise at www.comppremiumwizards.com.)
- Commissioner of Insurance (Iowa):
- First Deputy Commissioner of Insurance (Iowa);
- Assistant Attorney General, assigned on a full time basis to the Department of Insurance;
- Administrative Law Judge (ALJ, at the time “Hearing Officer”);
- Legal Counsel to the Iowa House of Representatives;
- Chief of Staff at the U.S. Congress;
- General Counsel and Chief Lobbyist to the American Academy of Actuaries;
- President and CEO of NCCI; and
- Elected Member of the Florida House of Representatives, where I serve as Vice Chair of the Insurance Committee, among others.
How I Can Help. PEOs are often challenged by insurers. I know PEOs and I know their workers compensation issues. The organization I headed up as CEO for about 10 years wrote the book on most all of the issues affecting PEOs.
- On audits;
- On the Classification System (class code);
- On the Experience Mod System (or the e-mod; or the experience modification factor);
- On the formula for High Deductibles;
- On the definition of “Payroll” for purposes of calculating premium;
- On all PEO workers comp issues, such as proper corporate combinations for e-mod calculations;
- On the formula for Retros;
- On the formula for schedule rating;
All of these items drive the final calculation of the workers’ comp premium. During my years as CEO at the National Council on Compensation Insurance (NCCI), that organizations’ job was to set the rules of the road for:
- The Classification System;
- The calculation of e-mods; and
- The calculations of High Deductibles and Retros and scheduled rating.
While at NCCI, with my staff, we:
- Oversaw all the rules that are applied to audits;
- Wrote the descriptions for the 600+ Classifications in the Scopes Manual;
- Wrote and implemented the U.S. e-mod system; including its formulas;
- Created and implemented the complex formulas for High Deductibles;
- Authored and implemented the definition of “Payroll”;
- For PEOs, we wrote the rules for corporate combinations for their e-mods; and most of the other rules that effect PEO premium;
- Created and implemented the complex formulas for Retros;
- Created and implemented the complex formulas for schedule rating;
- Wrote the definition of “Payroll” for determining workers compensation premium;
- Authored and filed some 500 statewide rate filings used throughout much of the U.S., setting the premium levels on about $15 billion of workers compensation premium – every year; and
- Gained regulatory approval to use all of the above formulas and rules;
Earlier in my career, as Iowa Commissioner of Insurance, I judged each of these matters and approved or modified the rules as submitted to the Department of Insurance. I have the background and experience to provide direct help to PEOs in connection with their relationship with their insurers.
Letters of Credit: I Can Help. I know what is behind PEO issues like letters of credits and monies posted versus insurer refusal to release these funds. I know issues can occasionally arise such as disagreement as to the amount of credit required by insurers from the PEO. I can help because I know how to interpret these contracts and accurately calculate related amounts required to be posted. For example, the contract may call for a percentage of annual claim activity to be posted to the insurer as letter of credit. I know how to fairly determine such amounts.
Corporate Combinations for E- Mod Purposes: I Can Help. I know the rules on the combination of corporate and organizational entities as it relates to re-setting the e-mod. This is so because we wrote the rules and can determine whether the e-mod has been accurately calculated against the corporate combination rules.
Audits of PEOs: I Can Help. Insurer audits of PEOs is no minor matter. It is not unusual for the PEO to be presented a significant bill for additional premium. Sometimes insurance company audit conclusions are not fully supported. Sometimes the audit conclusions arrive at the PEO’s doorstep in the form of a demand for additional premium, as opposed to a clear statement of the audit findings and an unambiguous calculation as to how the insurer arrived at the additional premium owing.
New Incoming Employees to the PEO: Is There Coverage? I Can Help. For example, the issue can arise as to whether the PEO’s new clients should rightfully have been insured by the insurer; where the insurer initially rejects a claim, contending that the new client was an impermissible insured or was not an insured.
Unlisted Employee: Is There Coverage? I Can Help. For example, the issue can arise as to an individual employee, where the PEO has instructed the underlying employer to provide a list of employees and an injury occurs to a non-listed employee; where the employee was recently hired and the insurer rejects the claim as a non-employee.
Contact Bill Hager at 561-306-5072 or via email to discuss your case.