Workers' Compensation Coverage
Understanding Workers' Compensation Insurance
When an insurance company writes a policy for an employer, the classification rate, and assessment are all used to calculate premium. The insurance carrier requests an estimate of total annual payroll from the employer. The premium cost is the classification rate for a classification multiplied by every $100 of payroll, plus the assessment cost.
Since the premium is based in part on payroll that is estimated at the beginning of the policy year, the final premium could be more or less, depending on the actual payroll at the end of the policy year. Adjustments are made at that time, resulting in either a refund or an additional charge. An employer who understates their payroll at the beginning of the policy may receive a smaller bill for a year or two, but once the policy is audited, the error will be caught and the employer will receive a large bill to pay for these "back" premiums. The employer is liable for all outstanding premium amounts that the employer owes, even if the policy has already been cancelled. If the understatement was intentional, it could be classified as fraud, a class E felony.