Some Cautionary Thoughts on Employers' Workers Comp "Fraud"

Been seeing a number of blog posts and articles about when employers commit "fraud" in relation to Workers Compensation insurance. Now, don't get me wrong--there are indeed employers out there who are gaming the system to lower premiums. And by gaming, I mean deliberately misrepresenting the nature of their operations or the nature of the work done by certain workers.  I've seen my share of cases where that was done, so I'm not being naive about the problem.

But I've also seen more than a few instances where the actual facts of the case were more complicated than the tales of greed painted by insurers and prosecutors.

I know of a high profile case where the business owner got pressured to plead guilty by an ambitious prosecutor in order to save a pending sale of a separate company that was going to greatly benefit his family. His choice was to fight the fraud charges that his attorney strongly felt he could defeat but scuttle a huge financial windfall for his family, or fall on his sword, plead guilty, and let his family benefit from a huge payday from the sale of the other company. It had been made clear to him that the sale would not go through if the unrelated company got dragged in, and it was also made clear that if he fought the charges that unrelated company would, indeed, get dragged in. What limited technical knowledge I have of the case suggests to me that the "misrepresentation" charged was exaggerated and that the fraud charges might not have held up under closer examination.

But cutting a deal with the prosecutor meant that such closer examination never happened. But the sale of the unrelated company went through.

I once saw a case where two insurance brokers were convicted on criminal charges over premium fraud committed by the policyholder. My own careful review of the evidence convinced me these brokers had done no wrong, had only sent in applications for WC coverage that had been based on prior audits by other insurers.  But I suspect the prosecutor wanted these brokers to roll over on the policyholder, who was politically connected to a well known (now retired) Chicago politician. So the prosecutor got the jury to convict the brokers, even though the policyholder had already reached a plea deal before the trial began. So there was indeed fraud there, but no indications that the brokers had been in on it. Didn't matter.

I saw another case where an inexperienced businesswoman was convicted of Workers Comp premium fraud even though it seemed to me she pretty clearly was not the mastermind behind the scheme. But she had made the mistake of hiring a woman she met at church--a woman who had served time in the past for Workers Comp premium fraud. The businesswoman was sure this nice lady from church had learned her lesson and would never risk going back to jail again by repeating her offense. So she hired her as an office manager for her new PEO--and guess what?

Only the repeat offender cut her deal with the prosecutor first, while the naive businesswoman fought on, believing that an innocent person had nothing to fear from our legal system.  For that assumption, she went to jail and lost her business, her reputation, and her marriage.

Keep in mind, the system for calculating Workers Comp insurance premiums is complex and often counter-intuitive. The system is complex enough that insurers make plenty of mistakes in administering it. So it should not be surprising that policyholders sometimes make the mistake of applying common sense to issues such as proper classification codes.  The manuals that spell out the technical details of classifications (including instances where common sense doesn't really apply) and audited premiums are not available to policyholders (and even if policyholders knew how to purchase them it would be a difficult read). So it can be difficult, if not impossible, for many policyholders to understand many of the fine points of WC premium computations.

I'm not saying there aren't genuine crooks out there looking to rip off the system--God knows, there are plenty of them. Some employers know from experience lots of ways to shave premiums by being less than honest.

I'm just saying it's not always as cut-and-dry as some in the insurance business (or the prosecutor's office) might have you think. So the next time you see some newspaper article painting an employer as the biggest crook since Yellow Kid Weil, take it with at least a small grain of salt.

Michigan Clarifies Independent Contractor Rules

The Michigan Supreme Court has clarified the criteria for when a worker is to be considered a true independent contractor rather than an employee. The Michigan Supremes ruled, in Auto-Owners Ins. Co. v. All Star Lawn Specialists Plus, Inc., that if just one of the three statutory criteria is met, the worker is an independent contractor.

The three statutory criteria are that the worker:
1.  maintain a separate business;
2. hold himself or herself out to and render service to the public;
3. be an employer subject to this act.

The Court of Appeals had earlier ruled that the worker had to meet all three criteria to be an independent contractor rather than an employee covered by Workers Comp of the entity using his or her services. The Supreme Court ruling overturned that, saying that meeting just one of the three standards is sufficient to make the worker an independent contractor.

In this particular case, the worker wanted to be an independent contractor, rather than an employee limited to the exclusive remedy of Workers Compensation benefits. But this sword should cut both ways--it also changes the standard for when an insurer can pick up payments to a 1099-type worker in Michigan for inclusion in the WC premiums of the party that purchases their services.

We shall see how carefully insurers observe this new standard.

I really gotta up my game...

Sigh. LexisNexis has announced, as they are wont to do this time of year, their choices for best Workers Comp blogs. This blog is not one of them. Again.

But the winners are really great sources of info, so those who read this modest effort would be well advised to check them out.

Interesting Phone Call Today

We had a long, long phone call today with someone at NCCI, the Workers Comp rating bureau in most states. We had found an error in an experience modification factor, an error by NCCI itself and not in the data that an insurer had reported. The person at NCCI, at one point, assured us, "NCCI never makes mistakes."

Except they had, in this case. And it took a lot of patient but persistent explanation to get this person to finally look at the right document and really understand what she was seeing, before she finally realized that oops, NCCI had indeed made a mistake in this instance.

The good news is that the experience mod for this client will be recalculated. But it definitely illustrates how resistant the system can be to catching and fixing some of these technical errors.

Feeling Like Bob Hope At The Oscars

Did you know there was something called the Comp Laude Awards? Neither did I, until I got an email today. Dammit, the post office lost my nomination again this year. Still, I have my "Curmudgeon Of The Year"award  to console me. Oh, and my second-place ribbon in the "Runner-Up Of The Year" contest.

Texas And The New NCCI Experience Mod Formula

Based on a little research that I've been doing, it looks like a lot of Texas employers are going to be getting some really unpleasant surprises in their experience modification factor calculations, starting July 1, 2015.

Regular readers know I've been writing a fair bit about the changes NCCI has made in their experience rating formula. Basically, NCCI has been implementing increases in how much of each individual claim gets fully counted in calculating experience modifiers. Until recently, only the first $5,000 of each claim counted fully--everything over this was discounted. But that changed in 2013, and the "split point" has been significantly increased in steps. At the moment, the first $13,500 of each claim gets fully counted. Next year, it goes up to the first $15,500 of each claim.

Now, Texas, until recently, wasn't really an NCCI state. Texas outsourced and licensed manuals from NCCI but kept the $5,000 set point. That's going to change, starting July 1, 2015, when Texas officially starts using the NCCI experience rating plan manual rules.

And rather than implement the higher set point in increments, according to the Texas Register (official publication of the Texas Secretary of State) "NCCI and staff recommend
implementing the proposed changes in their entirety, as opposed to transitioning the implementation over time."

So for Texas employers, the set point will just jump from $5,000 to $15,500. That means, for Texas employers that have any claims in the past three years that were greater than $5,000, their experience mods are going to jump.

We've already written about how we've seen a considerable increase in the number of employers contacting us who are desperate to reduce their experience mod because it's shot up over that magic 1.00 threshold. Texas employers are about to learn the hard way about the effect of this change, and they won't even get the changes implemented in increments--they get the full shot all at once.

Get ready to hear some screams from Texas employers sometime around the middle of next year, as these new experience mods start being promulgated.

A Perfect Storm For Experience Modiers

I keep returning to the subject of experience modifiers, because for so many of our clients in the construction or staffing industries, experience modification factors are vitally important in two ways. First, of course, they directly impact Workers Compensation insurance premium charges (a 1.25 e-mod means a 25% surcharge while a .75 mod means a 25% discount) but also because more and more of their customers and potential customers are using the experience mod calculation as a benchmark for even quoting on work.

The way this works is a client says, "to bid on this project, your experience modifier must be 1.00 or lower". They may set the bar slightly higher sometimes, say, at 1.05, but you get the idea. This rating factor that was developed for the purpose of adjusting insurance premiums is now being used as the be-all and end-all determination of workplace safety. And it's a bad, misleading measure.

It's also becoming the "perfect storm" for a lot of companies because of two changes in the insurance industry: a change in the NCCI rating formula and decreases in manual rates in many states.

I've written before about the new formula that's been devised by NCCI to calculate experience mods--the main difference is that more of each claim is being fully counted in the formula. In the prior formula, everything above the first $5,000 of each claim was discounted. Now, that "set point" has been raised, in increments, so that now the first $13,500 of each claim is counted (increasing next year to $15,000).  This means that the historical loss data used to compute a company's X-Mod has increasing impact on the mod calculation, if there are any losses in excess of $5,000 apiece.

But the second element that is driving modifiers up is that, in many states, manual rates have been declining in recent years.

Now, that's typically touted as good news for employers. Here in my home state of Illinois, for instance, politicians have been hyping the decline in manual rates as proof that recent 'reforms' have paid off for employers.

That's not really such an obvious truth--insurers have lots of ways to keep premiums high even when manual rates decline. But what hasn't been hyped so much is that when manual rates decline, so too do the "Expected Loss Rates" that are used in experience mod calculations--and those declines aren't such good news for employers.

Expected Loss Rates, or ELRs, are the way NCCI calculates what they think losses should have been for the average employer of your type and size in your state. They compare that to what's been reported for your past losses to calculate your experience mod.

So here's what's happening, thanks to these two unrelated changes. The change in the rating formula means that your historic losses have greater impact on your mod, while the decline in ELRs means your historic payroll info has less impact than it used to. So everything else being equal, with the very same prior loss and payroll data, your experience mod is likely taking a big jump.

So at the very same time that more and more customers are using the experience modifier as a make-or-break factor in bidding on work, behind-the-scenes changes in insurance rating and manual rates are pushing up modifiers, making companies look less safe than they used to be, even when you control out changes in losses.

Worse yet, these X-Mods are shutting out perfectly safe companies from bidding on new projects.

We're getting more and more calls from clients asking us to review their experience mods, to see if something can be done to reduce a suddenly disastrous mod calculation that threatens to put the client out of business. Often, we can find ways to reduce these mods. Often, but not always.

I'm not sure what the solution is, other than getting the word out that an experience modifier is not a fair or reliable benchmark for workplace safety, and that these technical changes made by the insurance industry have significantly re-set the mod formula and tilted mods higher for many employers without there being any change in their safety record or operations.

Illinois Workers Comp Rates Down--Premiums, Not So Much

Here's an interesting article from Business Insurance about how Illinois construction companies have not seen a decrease in Workers Comp premiums, even though there have been highly touted reductions in insurance rates in recent years.

This illustrates something I have written about before--just because manual rates go down, it doesn't mean the actual premiums paid by employers do the same. For one thing, this reduction in manual rates has coincided with a change in the NCCI experience modification factor formula. So even as manual rates decline, many employers have seen sharp increases in experience mods that more than offset any rate decreases.

And of course, there are lots of mechanisms for insurers to offset manual rate reductions in other ways, mainly by adjusting the use of Schedule Credit or Debits.  So a decrease in manual rates doesn't translate to an automatic decrease in premiums in the so-called Voluntary Market. And even in the Assigned Risk Plan, the change in the experience mod formula would more than offset the manual rate decrease for many employers.

Something to keep in mind when politicians hype the effectiveness of recent "reforms" in the benefits paid to injured workers.

New Oregon Study Ranks State Workers Comp Cost

The Oregon Department of Consumer and Business Services has released its latest study ranking the relative costliness of Workers Compensation insurance in all the various states.  The 'winner' this year, for most costly state, is California. And in our own experience, not only is California an exceedingly expensive state to buy Workers Compensation insurance, t is also a state where the regulatory and oversight mechanisms seem particularly poor, in terms of the redress and protection provided to employers in disputes over premiums, audits, classifications, and modifiers.

California goes its own way when it comes to Workers Compensation insurance, using its own rating bureau with its own distinctive manual of rules--and the biggest source of WC insurance is the State Compensation Insurance Fund, a state owned and operated WC fund that competes with private insurance. The combination of all these factors, really high premium rates and really crappy regulatory oversight, combined with a particularly high-handed State Fund means that employers in the Golden State have a really, really tough time of it. If you think your Workers Compensation insurance costs are a burden, just thank the business gods that you're not in California--unless you are, which in that case means you're really, really taking it on the chin.

New York Small Biz Learning Hard Lesson About Group WC Trusts

This is one of those stories that pops up repeatedly, in different states at different times, but never seems to ever go away for long, because various states seem unable to resist the lure of cheaper Workers Comp alternatives without making sure adequate regulatory oversight is in place to avoid disaster down the road.

It's happened here in Illinois in the past, in Kentucky, and in other states that have allowed group self-insurance trusts for Workers Compensation coverage. Without effective oversight, some of these plans inevitably dig themselves into a hole from there is no escape. They underprice coverage, getting business in the short term, but eventually those long-tail WC claims eat them alive.

Then the former members of these trust start getting bills for huge amounts, as they are held responsible for their proportionate share of the huge shortfall of the fund to which they were once a member. It isn't fair, it's a huge and crushing burden to many small businesses, and those who created the problem--lawmakers and those who ran the trusts--typically avoid the painful fallout.

Florida Officials Courageously Target Exploited Workers

...the employers who exploit them, not so much, apparently. And in the process, of course, helps reward employers who hire undocumented laborers.

This article in the Insurance Journal explains that Florida officials have been touting the arrests of undocumented workers who used fake ID to get work (and thus get Workers Comp coverage). Apparently, those workers foolhardy enough to actually make a claim when injured at work were instead arrested.

According to the article, there have been way more cases against such workers than there have been against the employers who benefit from such exploitation. And the beauty of this all is that the system rewards employers who use such desperate workers, because if the injured workers are afraid to file claims when injured, the experience modification factors for these employers will stay low--lower than the modifiers of companies that play by the rules and hire legal workers.

For companies in construction trades in particular, keeping experience modifiers low is an increasingly critical matter--more and more, customers are insisting on experience modifiers at 1.00 or lower in order to even bid on projects. And the new NCCI experience mod formula is pushing a lot of smaller companies over that all-important threshold, with dire consquences.

So nice to know that Florida authorities are focusing their efforts on the poor desperate people who do the dangerous and difficult work, and not the shady employers who take advantage of them (and in the process, gain a huge advantage over honest employers.)

North Carolina Avoids Rewarding Employers Of Undocumented Workers (For Now)

North Carolina has stripped out a provision of a recent bill that would have precluded Workers Compensation benefits for undocumented workers. But, they promise, they will take up the idea at some future legislative gathering.

Sigh. So the bad penny of Workers Compensation law may yet return again. Because if undocumented workers are prohibited from actually being compensated when they are maimed or other injured at work, it means that those employers who hire them would get a big advantage over employers who employ legal workers.

If undocumented workers can't get compensated under the law, this means the experience modification factor for employers who hire them will end up significantly lower than the mods for law-abiding competitors. After all, if the worker who loses some fingers, or a hand, or has a should go out, can't actually make a claim, there's nothing to report for the experience modifier. So this ill-conceived "reform" would actually create a significant financial incentive for employers to hire undocumented workers.

Not exactly what the legislators of North Carolina likely had in mind. I suspect the sponsors of this provision were mainly interested in making sure that desperate people could more easily be exploited and injured by employers without financial consequence to those employers, and at the same time provide a convenient platform for political grandstanding and fundraising.

South Carolina also recently considered, and then abandoned, such a change in their law. But the idea keeps cropping up, and some benighted states have actually enacted such restrictions.

Given the current state of our politics, and the desire by certain lawmakers to curry favor with the most fanatic of our nativist crusaders, I am sure this idea will keep coming up for consideration. And if and when enacted, it will be an object lesson in unintended consequences, by rewarding employers who hire undocumented workers with financial gain.

As for all those shorn fingers, mangled toes, blown-out shoulders and backs of undocumented workers, well, that's really not the concern of certain politicians and their allies. They don't allow blood and body parts on the floors of most state legislatures, it might upset the delicate digestions of the lawmakers.

New York Rating Bureau Gets Some Unwelcome Publicity

The New York Workers Compensation rating bureau, known as the New York State Compensation Insurance Rating Board, is getting some bad publicity and maybe some regulatory review after a rating decision causes a Brooklyn factor to shut down.

http://www.nydailynews.com/new-york/insurance-rating-agency-probe-causing-brooklyn-factory-close-article-1.1859852

This kind of economic shock to an employer isn't all that uncommon--we here at Advanced Insurance Management get calls and emails on a regular basis from employers facing similar price shocks after decisions by an insurance company or the rating bureau (NCCI in most other states, but some states like New York, California, and a few others operate their own).

This article illustrates not only the often unappreciated danger employers can face from these sorts of unexpected rate increases, it also carries another lesson. This Brooklyn factory started this whole problem by requesting a review by the NY board, after their insurance agent said they could be eligible for a lower rate.

That blew up in the faces of this small factory, and drives home the point that you really need to make sure you are working with knowledgeable experts when it comes to things like Workers Comp classifications, audits, and experience mods. Otherwise, like this unfortunate Brooklyn company, you might inadvertently begin something you ultimately regret.

WTF in Arizona Workers Comp

Arizona is kind of an odd state when it comes to the regulation of Workers Compensation insurance. Odd, in that it appears to essentially have no regulation or oversight of insurance companies regarding Workers Compensation insurance. The Department of Insurance says they don't get involved in Workers Comp insurance, no sir, no way, you have to talk to the Industrial Commission. And the Industrial Commission says no, we don't get involved in regulation or oversight of the insurance companies, we just provide oversight and regulation of employers in regards Workers Comp.

Wait, it gets better (well, worse, actually.) Arizona allows workers to legally waive themselves out of Workers Comp coverage. But it's supposed to be their own idea--no, really. The employer isn't supposed to suggest it or ask for it or pressure them or anything like that--wink, wink, nudge nudge. No potential for abuse here, I'm sure.

So basically, if an insurance company decides to impose some rule or policy that they just made up regarding how they compute Workers Comp insurance premiums, , the employer really doesn't have anyone to turn to. They could hire a lawyer, I suppose, and try to fight in court, but for lots of employers that recourse is too expensive and unsure to be a viable option.

I try not to let politics enter into this blog much--but really? I know Arizona politics is dominated by Republicans, but I thought the GOP also championed small business, and not just the big guys like the insurance companies.

In Arizona, not so much, it appears.

California Decision: Per Diem Payments Are Wages

In a significant court decision in California, it has been affirmed that per diem payments made to workers are to be used in computing Workers Comp premium charges. In ReadyLink Healthcare, Inc. v. State Compensation Insurance Fund, the Ninth Circuit Court of Appeals let stand an earlier decision that held per diem payments to wages, for purposes of calculating California Workers Compensation insurance premiums.

The per diem payments in this case were not tied to particular expenses of workers, but were instead a flat daily amount.

It should be noted that this ruling pertains only to California, where a separate rating bureau operates with its own unique manual of rules governing Workers Compensation insurance premium calculation. In most other states, the NCCI manual of rules would govern. NCCI rules in most states allow for the exclusion of per diem reimbursements from premium calculations, subject to some limitations.

Homeowners and Workers Comp

The California Department of Insurance has issued a press release, warning homeowners to make sure to verify the license and insurance status of any contractors they hire to do work on their house. An uninsured contractor or sub-contractor, if injured, can make a claim against the homeowner under California Workers Comp law.

This kind of exposure varies from state to state--some states have addressed this issue by statute, seeking to exempt homeowners who hire people to work on their home-- but many, such as California, have not.

This sort of thing happened to my own grandmother, many years ago. She hired a roofer who, it turns out, did not have insurance. The poor man fell off the roof to his death, and she was held liable under Illinois Workers Comp laws (which have since been amended to make this sort of thing less likely.

Of course, even in states that have tried to address the issue, the law may not be settled and clear-cut. And I would hasten to add that I am not an attorney. This article is not intended to offer any advice or opinion about the legal question of who is and is not eligible for Workers Compensation benefits. Those rules vary state by state, and evolve over time as well, as the law is changed or as court decisions are rendered.

So a word to the wise--check your state's laws on this point before hiring anyone to do work at your home, and then carefully verify their license and insurance status.

Sauce For The Goose?

I know I've written about this subject before, but recent events have freshened my frustration and sense of injustice. Every day, my Google News service brings me fresh stories about employers and workers being charged or convicted of Workers Compensation fraud. Now, I don't necessarily have a problem with that--those who defraud the Workers Comp system harm honest businesses and raise costs for everyone.

I do sometimes worry that the tendency of the insurance industry to always see criminal intent in the place of honest error by employers may result in some employers being falsely charged (and perhaps even being convicted). But today's rant isn't about that.

It is instead about this case I'm currently working on. We had a mediation last week, because the insurer (one of the big major insurance companies) has sued an employer for about Two million dollars of additional premiums for several years' Workers Compensation policies.

My major problem is that this big-time insurance company argued before the mediator (a retired judge) that a particular Illinois statute either does not cover Workers Compensation insurance, or else should be interpreted in such a way as to allow the insurer to be entitled to this two million dollars.

The problem is that I produced a memo from the Illinois Department of Insurance that had earlier gone out to all insurers in Illinois that explicitly explained that the statute did indeed cover Workers Compensation insurance, and that the interpretation advocated by the insurer is not correct.

Additionally, I have learned that people at the Illinois Department of Insurance had ongoing communications (including a video conference) with representatives of this very same major insurer, explaining in detail how this statute does apply to Workers Compensation insurance and how the self-serving interpretation advocated by the insurer is wrong.

So let me ask a question. If it is fraudulent for an employer to misrepresent the amount of payroll used to compute Workers Comp insurance, or to misrepresent the nature of the work done, in order to lower Workers Comp premiums, how exactly is it not fraud for an insurance company to seek two million dollars of Workers Comp premium in contradiction to the established statutes and regulations that govern Workers Compensation insurance?  Just askin', as they say.

A Warning Sign for Workers Comp Insurers...(and employers)

A new study by an analyst group concludes that a number of Workers Comp insurers are dangerously thin on their reserves, leaving them vulnerable to sudden shocks that, in the past, have undermined the financial stability of insurers.

This study suggests insurers have been keeping reserves too low, which means that if and when the insurers take action to address the deficient reserves, this will result upward pressure on rates on premiums for employers.

More ominously, it suggests that some insurers might be vulnerable to financial shocks. In the past, some well known and long established Workers Comp insurers have failed fairly unexpectedly, producing significant stresses for employers who rely on the insurance market to handle their Workers Comp coverage.

Workers Compensation is a notoriously difficult line of insurance to successfully underwrite in the long run, and more than one insurer thought they were smarter than the average bear, until reality and under-reserved claims unexpectedly proved them very wrong.

Oklahoma Entering New Territory Re: Workers Comp

Oklahoma has now enacted significant changes (and had those changes upheld in court) to their Workers Comp system, altering how claims are adjudicated and also giving employers the option to satisfy their Workers Comp obligations in an alternative manner. Although it has been compared to the Texas rules that allow employers to "go bare", that is, forego Workers Compensation coverage, Oklahoma's new rules are something different. Oklahoma now gives employers the option to establish alternative coverage for workers in place of the traditional Workers Compensation insurance policy.

Not sure how well this new system will actually work for employers and employees, but you can read more about it here.

Would You Buy Your Company's Workers Comp Insurance From Overstock.com?

...because Overstock.com is now selling Workers Compensation insurance, along with other lines of commercial property/casualty insurance, as well as personal lines. And I see Wal-Mart has just started selling Auto insurance (personal lines, I presume).

I strongly suspect that Overstock.com will not be competing on large accounts anytime soon. But this is, after all, very early days for this venture, which is in partnership with Insuritas. But it certainly feels like just the start of something big, something that may revolutionize the hidebound insurance delivery system.

The question remains, of course, what may be lost with this revolution, and what will be gained? For smaller employers, this could be a useful innovation, as smaller employers have often gotten short shrift from the traditional insurance system. But will getting commercial insurance from the likes of Overstock.com be better? Perhaps the implied improvement in electronic paper trail might offer some benefit to policyholders, as the occasional failings and oversights of the traditional analog system are replaced with something more reliable. But we have also seen spectacular screw-ups in the digital age, with information breaches and the like at supposedly large and reliable companies.

We are boldly going into new territory here, and only time will tell about the relative merits and demerits of this new development. The only thing I am confident of, at this point, is that Overstock.com will soon have competition for the online sale of commercial insurance.

More On PEOs and Workers Comp

I've written in the past about PEOs and Workers Compensation, but there are a few more points I thought might be useful to post about. To recap, a PEO (Professional Employer Organization) is currently the most common term for a business service that used to be known as Employee Leasing. It has some similarities to other kinds of staffing companies, but also very important differences. A PEO becomes, via contractual agreement, a "co-employer" along with the client companies of the PEO.

So, for example, if ABC Widget Remanufacturers, Inc. signs up with Supergreat PEOxperts, LLC, Supergreat becomes, for legal purposes, the co-employer of the people who work at ABC. That's an important and fundamental difference between a PEO and say, a staffing company that might provide temp workers to ABC who weren't already employees of ABC.

As co-employer, Supergreat can now legally do things like purchase Workers Compensation insurance that covers the workforce at ABC. Supergreat can also do things like handle withholding, get health insurance, and handle various other back office functions for ABC. But my focus is on the Workers Compensation coverage.

As I have said before, a well run PEO can indeed offer significant benefits to client companies in the area of Workers Compensation insurance. That's because there are economies of scale that can enable a PEO to obtain Workers Compensation insurance for less than the smaller individual client companies could get. So even with the fees charged by Supergreat, ABC likely can pay less for Workers Comp through the PEO than the best deal ABC could find on its own.

The problems I have observed with PEOs and Workers Comp have to do with some of the complexities of the Workers Compensation insurance system.  And when things go bad in a PEO Workers Compensation arrangement, they can go very bad indeed, and leave client companies like ABC with significant problems.

One problem is that PEOs are, in most states, loosely regulated at best. In my home state of Illinois, for example, a PEO must be registered and licensed by the Illinois Department of Insurance. But there is no actual oversight exercised by the department, save to confirm that the PEO has in place valid Workers Compensation insurance.

The big potential problem in regards PEO-provided Workers Compensation is if the PEO encounters difficulties in obtaining coverage at a cost that is low enough to make the PEO business model work. Sure, coverage is always available through Assigned Risk programs, but these insurers-of-last-resort pose real problems for PEOs--the cost is almost much higher than voluntary market coverage, and Assigned Risk coverage must often be cobbled together with a number of separate policies for different states.

As I've written about before, I once served as an expert witness in a legal case that involved, tangentially, the collapse of TTC, which had been, until it's demise, the largest PEO in the country. But the loss of affordable Workers Compensation insurance (which the PEO concealed from clients and regulators for as long as possible) ultimately doomed the company--and left client companies responsible for WC claims that they had thought were covered by the PEO  to which they had paid substantial sums for WC coverage).

TTC was hardly the only PEO to encounter Workers Comp related difficulties. In another case in which I served as an expert, a PEO had obtained WC coverage through the Assigned Risk plan. Now, it really should be impossible for a PEO to obtain WC insurance through an Assigned Risk program and still offer any cost savings to clients. But this PEO misrepresented classification codes and payroll amounts to the insurer, so that, until it all blew up, the premiums paid by the PEO were much, much lower than the clients could have obtained on their own (because of that aforementioned part about misrepresenting proper classifications and payroll amounts.)

The insurance industry has been, for many years, somewhat leery of the PEO industry, having been burned by shady operators who played games with classifications, payrolls, and experience modifiers, to obtain WC insurance at improperly-low rates. But then along came the advent of Large Deductible Workers Compensation insurance, and some insurers decided this could be a way to turn PEOs into profitable accounts and minimize the chances for improper premium avoidance.

With Large Deductible policies, the policyholder agrees to be responsible for all WC claims up some large amount (say, the first $100,000 of each claim--or the first $500,000, or even the first $1,000,000). Technically, the policyholder is responsible for funding upfront a pot of money to pay those claims, and then to replenish the pot as it gets used up. And the actual insurance premium charges under such policies gets heavily discounted, so that most of what the policyholder has to pay is really reimbursement for claims and associated handling fees and charges.

The problem with such a Large Deductible set up is that it's difficult to estimate what the actual exposure may be for claims under the deductible limit. Plus, insurers often make the details of these plans so complicated that it's very difficult for the policyholder to understand what the ultimate costs of the insurance really will be. A recipe, often, for policyholders running up tabs with insurers that they have difficulty understanding, or paying.

Now, the important aspect of Large Deductible insurance is that the insurance company is ultimately legally liable to pay claims under the policy, regardless of whether or not the policyholder reimburses for claims under the deductible. But this can introduce additional stresses on some insurers--and thus increase the odds of an insurer failing under those financial stresses.

The clients of a PEO usually don't have information about whether or not the PEO is insured via a Large Deductible policy or whether or not there are behind the scenes problems between the PEO and its insurer that could cause WC coverage to disappear on short notice. Clients of PEOs often assume that the insurance regulatory system is making sure there aren't abuses that will create unexpected and nasty surprises. But such assumptions, in many states, are probably not well warranted. Insurance regulators in many states have had a murky understanding, at best, of what is going on in the marketplace with PEOs and Large Deductible policies, and many state insurance regulators have had their staffs and budgets reduced significantly in recent years.  So oversight, never robust in many jurisdictions, is now further reduced. Caveat emptor, indeed.

If I were a business contemplating getting Workers Compensation insurance through a PEO, I think I would want to insist on getting a copy of the PEO's current WC policy, and then having an insurance professional take a look at said policy. I would want to know if the policy were a Large Deductible policy, or Assigned Risk policy, and who the insurer was. I would want to check into the financial size and stability of the insurer, and if it is a Large Deductible policy I would want to check carefully into the financial strength and stability of the PEO.  If it turned out to be an Assigned Risk policy, I would look to see if the correct classification code for my business was on that policy. If not, I would want to see evidence that the correct classification code for my kind of work was added to the policy once I signed up.  Because if it is not, the PEO might be misrepresenting classifications to its insurer, which is a big red flag that all is not well behind the scenes in regards Workers Comp coverage.

The insurance industry has taken significant steps, in recent years, to address some of the problems inherent in the PEO model. And as I said at the outset, a well run PEO can truly offer significant cost savings to clients. The trick is, I believe, to truly qualify which PEOs are indeed well run, at least in regards their Workers Compensation insurance. The current system does not always catch problems until something serious has gone wrong, and that can leave the clients of those problem PEOs holding an expensive bag.

Nebraska Supreme Court: PTSD Covered Under WC

The Nebraska Supreme Court has ruled that the state's Workers Compensation statutory coverage includes both PTSD and work-caused drug and alcohol dependency. The court upheld a prior ruling by the Nebraska Workers Compensation Court, which had been appealed by an employer and its Workers Comp insurer.

Mathew Kim, a clothing store manager, was shot twelve times to try and prevent him from testifying against an armed robber. Kim still testified against the robber, his accomplice, and the robber's brother who shot Kim and made phone threats to dissuade him from testifying.

Although Workers Compensation had covered his initial wounds and the resulting time off from work, Kim was also diagnosed with PTSD after the attack and developed severe drug and alcohol dependency, causing him to be off work for nineteen months and to also have to shoulder the medical costs for treatment.

Full story here.

These Folks Make Me Feel So Inadequate

Try as I may, I know my own efforts at a Workers Compensation insurance oriented blog are, to be charitable, rather modest. Here are some folks out there (some of whom I even know) who really do a bang-up job.

http://www.workerscompinsider.com/

Workers Comp Insider, by Lynch Ryan. This blog really, really sets the bar high. Lot of good information and analysis.

http://insurancewriter.com/blog/

Written by my friend Nancy Germond, this blog also casts a wide net in terms of subjects covered, with wise analysis and commentary from a long-time industry observer.

http://www.businessinsurance.com/section/blogs02

Published as part of Business Insurance's online efforts.  Another wide-ranging blog that really provides quality information.

The Rassp Report

Insights on the world of California Workers Compensation.

Ouch

Another informative Workers Comp blog, this one by Roland Legal PLLC.


Let me know of any other Workers Comp related blogs you find particularly useful and helpful, and I will be glad to note them here.

A Nice Refund For A Client

We just got confirmation that refunds are on their way from the appropriate insurance companies to one of our clients. Our review had found that, for years, their Workers Comp insurers had failed to allocate substantial amounts of payroll to a less-expensive classification, even though the client qualified for that lower code.

So now, thanks to our efforts over the past year, about $120,000 in refunds are on their way to our client in Connecticut. And there is still more on the way from another insurer, as well as some significant General Liability refunds. All in all, a very nice way to start the day.

The Incredible Shrinking Dept. of Insurance-Updated

I don't know how insurance regulation is faring in other states (well, that's not true--but I have better intel about the department of insurance in my home state) but here in Illinois, the staff of the Illinois Department of Insurance is now about half what it was a few years ago. And the exodus of experienced people from that department continues--in fact, it's probably accelerating.  I've written about this earlier, so I don't mean to sound like a broken record, but several more experienced, high level people have fled the department just this year, and the tales they tell about workplace morale there are worrisome.

Now, some folks might not feel that reductions in the size of state government bureaucracy are necessarily a bad thing--but it remains my view that it is a terrible mistake to depopulate the agency that protects the public from insurance company errors and abuses. Yet that is exactly what has been happening in Illinois, and what continues to happen here.

My initial dark suspicion, based on some earlier insider information, was that the insurance industry liked such a depopulation just fine. But it may now be getting to the point where even the insurance industry is discovering the downside of having this important agency crippled.

The sad thing is, the Department of Insurance isn't funded by the taxpayer--it's funded by fees paid by the insurance industry. So the DOI has become a cash cow for state government--the agency's budget is kept low so all those industry fees can be diverted into other projects that various politicians deem more worthy, more important, more relevant to said politicians re-election efforts.

My word from inside the Illinois DOI is that there are few experienced people left, and that morale among those still there is pretty low. And no matter what certain folks might claim, there are some damn important functions of state government that need to be done competently and fairly. And it's hard to do that without staff that aren't suffering from the workplace equivalent of PTSD.

Is The Insurance System Targeting Certain Types of Roof Inspectors?

As I think I've mentioned before, sometimes it seems like the insurance companies are worried about whether or not we have enough work, so they create serious premium audit disputes that panic policyholders (and drive them to seek us out.) In the latest iteration of this, it looks like they're currently targeting certain kinds of companies that do roof inspections, and then subcontract out the actual roofing repair.

We've gotten calls from three different such companies in the past month, all with similar stories. All these companies don't actually do any roofing work themselves--they hire independent contractors that have their own Workers Comp insurance. This is an important point, as it means that the workers who are doing the roofing repair are not covered by the policies purchased by the roofing inspection companies.

The insurance companies are developing huge additional premium charges at the audits, saying that the roofing estimators, since they sometimes go up on a roof as part of their inspection work, go into the roofing classification--which is a pretty expensive classification.

One of these small businesses just got a bill for $400,000 from their insurance company. Another got a bill for $150,000. As one of these small business owners told me, "my annual profit from the company is $25,000--how do they expect me to pay $150,000?"

The thing is, there is a separate classification that is designed for those who do roof inspections--a class that is much, much, much less expensive than the roofing class. But the insurance companies are taking the position that NCCI rules require estimators who work for roofing companies to go into the roofing class. And even though there are no actual roofers covered by the policies in question (the roofers, remember, have their own policies) the insurance companies are adamant.

So now we're going to be trying to help these roofing inspection companies avoid being destroyed by these huge and unexpected premium increases. We think we have a sound, reasonable, and fair basis for using the roof inspection class for these companies. But only time will tell if we can actually persuade the various appeal boards involved to use it for these clients, or if the insurance system will instead drive these companies out of business.

Workers Comp Insurance Deregulation: A Bridge Too Far?

In most states, Workers Compensation insurance has been deregulated to a very great extent, in the sense that the historic requirements about standardized rates, policy forms, endorsements, and rating plans have been removed from the once-strict oversight of insurance regulators.

Nowadays, many state insurance regulators don't really appear to have a good handle on what's going on out in the insurance marketplace. And so Workers Compensation insurance has moved from being the most tightly regulated line of insurance to being...little regulated, in many important aspects. This has coincided with an historic reduction in staffing and budgets of many state insurance departments of insurance.

Once upon a time, Workers Compensation insurance companies couldn't even compete much over price or policy form, as this was considered bad public policy. It was feared that price competition would undermine the financial stability of insurers, to the ultimate detriment of injured workers. But back in the 1980's, the trend began towards "open rating" in Workers Compensation insurance, which was believed to encourage price competition, which would benefit employers by harnessing competition to hold down premiums.

And arguably, this did occur to some extent--if your business was relatively low risk, with a good loss history, but decent premium size, insurers would indeed compete for your account on price. And such employers could really enjoy having a whip hand when multiple insurers competed, especially in soft markets.

But the downside of deregulation is that insurance companies in many states can just "file and use" rating plans and endorsements--that is, insurance regulators no longer get a veto of proposed new ways of pricing Workers Compensation insurance. In South Carolina, for example, insurers don't even have to file their new forms with regulators--as long as the insurance company has the policy form or manual available (you know, in the underwriting managers desk drawer or something) they don't have to file anything at all with the department of insurance. So insurance regulators no longer really know what's going on out in the marketplace.

The theory of all this deregulation is that Workers Compensation insurance can be "negotiated" between an insurance company and a sophisticated buyer. The flaw in that theory is that insurance companies almost always have a far superior understanding of the fine details of the working of their rating plans than the buyers do. Especially when the buyers are making their decisions based on proposals from an agent or broker that summarizes the premium calculation details rather than really spelling out in detail all the fine print.

At least in the old days, things were relatively standardized. But now, insurance companies can come up with complicated rating plans that only an actuary could really understand and not even the insurance regulators know what's in the details.

Deregulation has also produced the phenomenon of allowing group self-insurance trusts to flourish in many states--flourish, that is, until enough time has passed for claims costs to grow in the dark, like mushrooms, and overwhelm many of those trusts (many New York employers are learning this lesson right now) leaving businesses not only with suddenly-vanishing coverage but also unexpected liability for their share of the entire trust's losses.

Price competition has also contributed to the demise of some major insurance companies in recent decades, with resulting unpleasant consequences for employers and workers. The largest writer of Workers Compensation insurance in my home state of Illinois, back in the 1980's and 1990's, was Casualty Insurance Company, one of the early beneficiaries of price deregulation. They are no longer in business.

Neither is American Mutual, the insurance company that wrote the very first Workers Compensation insurance policy in the U.S. They vanished after deregulation took hold, also, unable to adjust to the brave new world of price competition, among other difficulties.

Now, I'm not arguing that we should go back to those long ago days of strict price and policy regulation. Employers really have benefited, I think, from price competition. But we've also lost something along the way--the ability of many insurers to really have a reliable understanding of how their insurance premiums would be calculated, for one thing. And the discipline that was imposed on the insurance industry by having some level of regulatory oversight, along with the consumer protections that came from that regulation.

The Workers Compensation insurance industry has been consolidating, with a few very large companies increasingly dominating the marketplace. Sure, there are still a lot of smaller niche players, but those niche ecosystems have been growing smaller.

Employers need to be able to rely on their Workers Compensation insurers to play fair in computing premiums and handling claims. Deregulation has, I believe, undermined the ability or employers to so rely on their insurers. Without effective independent oversight, our consulting work on behalf of employers indicates that there is a certain rottenness setting in deep behind the scenes, with some insurers not really playing fair.

Not long ago, the NCCI filed suit against AIG, for a billion dollars, claiming AIG had been systematically cheating the system behind the scenes. In its countersuit, AIG said all the major insurers were doing the same, and then some. The legal documents make for some interesting reading.And provide a lot of food for worry, if even only some of the charges and counter charges are true.

Connecticut Considers PTSD Inclusion in Workers Comp

Connecticut is considering two bills that would extend Workers Compensation benefits to workers suffering PTSD type complications. One bill would extend coverage only to state or municipal workers, the other would extend it to all workers.

CT used to include such emotional disabilities under its Workers Compensation Act, but a 1993 revision eliminated such coverage.

In an age when violent tragedies seem to be more common than ever, and when PTSD type injuries are being understood and recognized far more than in the past, this may be the humane and appropriate course correction to take. It will, of course, exert an upward pressure on Workers Compensation insurance rates and premiums, and that is never an easy sell to the business and insurance communities.

Legal Issues With Experience Modifiers

Found a very interesting article about legal issues surrounding experience modification factors. Reviewing experience modifiers (and finding ways to get them lowered by correcting errors in the calculations) has become an increasing part of our consulting workload here at AIM. Particularly with the implementation of the new NCCI formula for experience mods, and the increasing prevalence of clients (particular governmental entities) using modifiers as a criterion for project bids, more and more companies are asking us to double-check their mod calculations, and to fix any errors we find.

Such errors, sad to say, are more common than generally understood.

Texas Going All NCCI On Us

It has been reported that Texas is in the process of shifting over to using the NCCI system of Workers Comp classifications and manual rules. Historically, Texas has had the Texas Department of Insurance, or TDI, function as a sort of de facto rating bureau, while outsourcing the calculation of experience modifiers to NCCI. But now TDI has announced that they plan on transitioning to adopting the NCCI (National Council on Compensation Insurance, that is) classification definitions and the NCCI manual rules for premium computation and auditing.

TDI says they still intend to carry over some Texas-style rules into this new system, and the NCCI system is designed to accommodate state special classifications and manual rules. So a lot will depend on the details of just how much of the old rules are kept, and how many are discarded. Stay tuned for further developments, as they say.

Insurers and The Carrington Event

Back in  1859, earth got whacked with a huge solar storm. At the time, it disrupted telegraph communications but not a lot more than that. Today, a comparable event to the 1859 "Carrington Event" would be a major world-wide disaster, and insurers are now starting to contemplate what could and should be done to try to reduce the crippling damage that would result to our modern electronic infrastructure.

Travelers Now The 800 Pound Gorilla of Workers Comp

According to the National Association of Insurance Commissioners, Travelers Insurance was the largest writer of Workers Compensation insurance in 2013. Travelers wrote $4.18 billion in WC premium, or 8% of the market. Liberty Mutual was next, with $3.6 billion, followed by Hartford with $3.3 billion and AIG with $2.84 billion.

Of course, as many employers have discovered, bigger is not always better. Our experience as premium audit consultants has found Travelers' auditors to be particularly tough on policyholder audits, sometimes really stretching small points to make a big difference in the final premium bill. And the folks at Travelers are not always the easiest people to deal with, when trying to get mistakes corrected. Many insurer's audit personnel are skeptical, of course, when we first approach them about correcting errors for our clients, but Travelers seems to make it just a tad more difficult, more exasperating, to get these problems fixed. Maybe that's what happens when you get to be the 800 pound gorilla in any field.

Why Every Business Needs Someone Like Me

That sure seems like an egotistical headline for a blog post, but I hope readers will bear with me and let me explain. I'm not saying every business needs me, exactly (although that would be a nice thing, from my point of view) but rather that they need someone like me.  And this has to do with the rather unique, emerging specialty that I've been working in for the past thirty years or so. That specialty is the independent consultation and review of Workers Compensation premium charges.

Don't get me wrong--we help a lot of companies, big and small. So do our competitors, scattered around the country. But all of our combined clients constitute just a tiny, tiny fraction of all the businesses that buy Workers Compensation insurance. So despite all our best efforts at marketing and promotion, most companies don't really know our industry exists.

Yet I am firmly convinced that most, if not all, businesses that purchase Workers Compensation insurance would benefit from using the services of someone like me.

Consider this analogy: almost every business of much size hires an independent professional accountant to do their bookkeeping and taxes.  You just don't want to trust the IRS to figure your taxes, even though you could. Most businesses find it prudent to hire an independent professional because tax rules are complicated and they figure (correctly, I am sure) that the cost of such an independent professional is worth the expense to avoid paying unnecessary taxes or penalties.

Well guess what? The rules governing the computation of Workers Compensation insurance premiums are complex as well, and perhaps less well understood generally than the tax laws. Most of the people who know these rules well work for the insurance companies--and their training and management tend to focus on finding mistakes that serve to reduce premiums, and not so much on catching any mistakes that increase premium charges.

Ah, some folks say, but that's where our broker comes in--that's why we pay him those commissions. Our broker/agent takes care of that for us.

That sound you now hear is me clearing my throat dramatically. Because in every single case where we've found and fixed premium overcharges, the client had an agent/broker. And usually a good one. It's not like we only find overcharges for clients who have sloppy agents.

The problem is that agents/brokers aren't usually well-trained in the complex rules that govern Workers Comp premium computation. They know the basics, sure--but they're not specialists. And even when they do think they've spotted a problem, the insurance companies take anything they say in this regard with a huge grain of salt. The insurers tend to dismiss a lot of the input of agents/brokers in this regard because the insurance companies know that their own underwriters and auditors have a lot more training and experience in these technical areas. And they also expect that an agent will take the policyholder's side because the agent is trying to keep in good graces with his customer.

The other handicap agents and brokers have is that they can't be seen by the insurers as being too antagonistic to the insurance companies interests, because that agent may well need that same insurance company to give him a good quote on another account next week, or next month. So the agent/broker can't step on too many toes at the insurance company.

That's part of the reason why my company gets hired by insurance agents to help their clients sometimes--they understand that we can help clients when they can't.

The rules governing Workers Compensation insurance premium are complicated, as I said earlier, and can involve the interplay of multiple bureaucracies. Often, to correct an overcharge for a client, we end up working not just with the insurance company but also the appropriate rating bureau and maybe even state insurance regulators. Because these separate operators don't always work together as effectively as one might wish.

To correct an error in an experience modifier, for instance, often requires us to work with the rating bureau, a past insurance company, and possibly a different insurance company that writes the current policy. Sometimes, we also have to work with state insurance regulators, to prod recalcitrant or reluctant insurers to file the corrected reports on a timely basis.

Because we work with these fine details of the system every day, we know how things are supposed to work--and where they often fall between the cracks. It's a specialized field within the insurance industry, one that is still poorly understood by many.

But it is in the interests of businesses to understand that this specialized service exists, and how they could benefit from it.

As I often like to say, if your business doesn't trust the IRS to figure your taxes, why in the world would you trust your insurance company to figure your Workers Comp premiums? As a wise man once suggested, "Trust, but verify."

Pros and Cons of Using a PEO for Workers Comp

I've seen a couple of online items recently on using PEOs for Workers Comp coverage. They reminded me that I addressed this issuehttp://voices.yahoo.com/pros-cons-using-peo-7321914.html a little while back, and some readers might not have seen that.

The bottom line remains that there can be advantages, but lax (more like non-existent) regulation of the industry also creates potential problems for employers. Take a look, and let me know your thoughts and experiences.

Delaware Lt. Gov No Fan of Rating Bureau

Delaware's Lieutenant Governor, Matt Denn, has criticized Delaware's Workers Comp Rating Bureau for treating the rate making process "as the equivalent of a rug bazaar", proposing excessive rate increases with the expectation that it will be negotiated down.

Treating Workers Comp rates as something of a political football is hardly confined to Delaware, of course. But one would hope that rating bureaus would take something more of a factual, actuarial approach to Workers Comp rates. Of course, Lt. Gov. Denn probably isn't a disinterested observer of the process. He is, of course, part of the political process. And he was speaking to his state's Bar Association, themselves not impartial observers to a considerable extent. And so it goes.

Change in AZ Bad Faith?

A new bill introduced in Arizona would move bad faith actions against insurers for denying Workers Comp claims from the courts (and thus away from juries) to the state's Industrial Commission.

Not sure how good or bad this idea might be. Anything that makes it more difficult for injured workers to get justice would be bad, but there are also a lot of fraudulent or exaggerated claims in the Workers Comp world. Comments from readers always welcomed.

Good News For An Alaska Client

Got a nice email today from a client in Alaska. We had helped them appeal a recent change in Workers Comp classification code that had been made by NCCI. The change in classification resulted in a a tend-fold increase in rates and premium, an increase so severe that it threatened the continued viability of the business.

Our review found that the classification assigned by NCCI was incorrect and excessive, given the actual nature of the work done by the client's workers, and so we wrote a detailed report explaining why a much less expensive class was really the correct and appropriate one. We also provided testimony via phone at the appeal hearing. And ultimately the appeal board in Alaska agreed and overruled NCCI, assigning the much less expensive classification we had advocated for.

It's always gratifying when our efforts can make a difference and help a business avoid being crushed by excessive Workers Compensation insurance premiums.

Disputing a Workers Comp Audit

When an employer strongly disagrees with the results of a Workers Comp premium audit, there can be an understandable tendency to ascribe base motives to the auditor and to vent one's frustrations in unmistakable terms. But this can be a mistake, giving the insurance company a basis to dismiss legitimate objections.

Here are some thoughts and strategies regarding how to effectively dispute a Workers Compensation insurance premium audit.

"Tis The Season

...For Workers Comp audits, that is. Yes, now that the holidays are over and Santa has safely returned to the North Pole, employers whose Workers Comp policies expired in late December or early January can now anticipate a visit from someone else who makes regular rounds every year--the premium auditor.

An awful lot of Workers Comp policies expire with the calendar year, and so premium auditors everywhere are starting to reach out and schedule audits for those policies. Unlike Santa's annual trip however, these visits sometimes do not spread joy and happiness across the land. Sometimes, premium audits become occasions for dispute, distress, and despair--especially if the audit generates unexpectedly large amounts of additional premium charges.

Employers need to pay their fair and appropriate WC premiums, of course. But sometimes, due to poor communications and documentation, the audit process can become a bit of a nightmare for the insured employer. The insurance industry does not always do as good a job as it might in communicating in advance just how premiums will be calculated, and business owners and managers can receive very unpleasant shocks when those audit bills arrive.

A bit of preparation can help reduce audit friction and pain. For our suggestions, take a look at our website advice for employers.