NCACC Workers' Compensation audit guide

• Scopes manual (PDF)

Purpose: NCACC reinsurance requires an annual payroll audit to determine exposures and final contributions for members of the Workers’ Compensation Pool. Members should budget for possible changes in contributions based on previous payroll estimates.

Pre-audit preparation: Each member will be notified by the auditor of the date and time of the audit. A phone call will confirm the appointment. Any staff made available to answer the auditor’s questions should be familiar with the available records and duties of all employees.

Audit documents: The auditor will examine payroll and job duties for each employee to determine changes in operations and changes in payroll from the initial estimate. The types of records that need to be available are payroll ledgers, FICA payments, 1099s, vendor journals, certificates of insurance, 941 and unemployment quarterlies, among others.

Definitions: Payroll includes but is not limited to the following:

1. Wages, salaries, overtime (excluding the extra 1/3 increase overtime allowance).
2. Vacation, holiday, leave or payment for sick leave, FICA, severance, payments for military duty, pension or Davis-Bacon Act payments.
3. Payments for salary reduction, savings plans, retirement or 125 cafeteria plans or other annuity plans.
4. Value of additional non-wage items, housing, tool allowances, automobiles or other non-wages.

The Association follows the rules and classifications established by the National Council on Compensation Insurance as approved by the North Carolina Rate Bureau.

Volunteers who are covered by the Association are to be charged on an hourly basis for the same or similar work as completed by employees.

Common rules:

Clerical workers must be physically separated from other workers at shops, yards and landfills in order to qualify for the clerical 8810 rate. Physically separated means counter, partitions or buildings to protect the clerical employee from the existing operational hazards.

Assignment of employees between two classifications is now allowed. However, the following rules apply: Records must reflect the actual time spent working within each job classification and at an average hourly wage comparable to the wages for such employees within the industry. Estimated or percentage allocation of payroll is not permitted, otherwise, if an employee has multiple duties assignable to more than one classification, the classification will be assigned to the highest rated exposure. Following this informational page are descriptions of typical classification of county employees. Not all classifications are shown. If you have difficulty in classifying an employee your auditor or Association staff will be glad to assist.

Wages paid to subcontractors are subject to inclusion on members’ audits unless valid certificates of Workers’ Compensation insurance are maintained. It is recommended all subcontractors and vendors provide certificates of insurance. Members can be held responsible for injuries suffered by uninsured subcontractors.

Uninsured contractors:

There may be some confusion among Workers’ Compensation Pool members regarding the appropriate procedures regarding sub-contracted workers.

First, the best procedure is to obtain a certificate of insurance from the contractor indicating Workers’ Compensation insurance. This will need to be maintained to verify coverage when an audit is completed.

If there is no verification of Workers’ Compensation coverage, even if the contractor is an individual or has less than three employees and otherwise is not required to purchase Workers’ Compensation coverage, the pool and members can be subject to a loss. This situation can easily occur where individuals are hired to teach sports, health classes and other activities normally associated with a county service.

Existing case law from the North Carolina Supreme Court indicates that if some of the following conditions are met, the member and pool can be held responsible for a claim from an uninsured subcontractor subject to the following:

1. Engaged in a related calling or occupation similar to county business.
2. Not having a special skill needed for the completion of the task.
3. Paid at an hourly or other basis other than a fixed price or lumped sum.
4. Can be discharged at will.
5. Is or has performed similar duties for the contracting party.
6. Required to secure approval for the use of additional sub-contractors.
7. Does not have control over sub-contractors.
8. Is not given specific times for the performance of the contract.

In conjunction with our legal attorneys, staff has the following recommendation to the trustees to be restated to all Workers’ Compensation Pool members.

All members should be aware of the additional loss exposure presented by hiring sub-contractors not providing a certificate of Workers’ Compensation insurance and, that subject to audit, additional contributions related to the exposure can be made.

N.C. Workers’ Compensation code has referenced the hiring of uninsured subcontractors 97:19 outlines the responsibilities of the hiring party. Although recovery is permitted against the uninsured contractor the likelihood of recovery is very limited.