Simple Concepts for a Complex System – Payroll Reporting and Employer Fraud

One of the most common types of employer fraud in workers' compensation is employers who lie to the insurance company about the payroll classification of their workers and salaries that have been paid. 

A common example of this is the roofing company that has 26 front office clerks and one roofer.  One would think that simple analytics in the insurance company underwriting programs would catch much of this blatant mischief.

A few of the largest payroll companies in the USA include ADP, Intuit, Workday, Pay.Com, TriNet, PayCor Oracle Deluxe, QuickBooks OnPay. I am sure that there are many others.

Currently, most insured employers fill out payroll reporting forms and send them in to the insurance companies. 

Insurance companies (and rating bureaus) send out auditors to verify the accuracy of the documents submitted to the insurance companies.  One of the unwelcome surprises that employers get at the end of the policy year is a request for additional premium if the payroll has expanded and if the employer was paying a fixed monthly fee. 

Accuracy of payroll reporting would improve, (and much of the misrepresentation of classifications would disappear) if the payroll companies directly reported the classifications and salaries to the insurance companies.  Monthly reporting from the payroll companies would help also provide information that additional premiums may be due, so the employer can plan for the expense.  

Direct reporting from the independent payroll companies should reduce the staff needed to independently audit the employers’ payroll.

To my knowledge, most of the insurance companies do not have any direct relationship or direct reporting from the payroll companies. 

Workers’ compensation payroll reporting should be a part of the normal function of the payroll companies.  

I am not sure who has oversight of this issue.  Should rating bureaus mandate the change to payroll companies?  Is this a Department of Insurance function? Should it happen when the heads of the largest insurance companies call the heads of the largest payroll companies to explore common goals?  Could direct reporting be a competitive advantage for the payroll companies? Can insurers charge differently if the company uses a payroll company to report instead of from the insured?

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William M "Bill" Zachry is a Board member of the California State Compensation Insurance Fund, Appointed by Governors Arnold Schwarzenegger and Jerry Brown. He served 3 years as a Senior Fellow at the Sedgwick Institute. His term ended in January 2020. Zachry was awarded the Summa CompLaude award in November of 2020, the RIMS Risk Manager of the Year 2014, the CCWC Workers Compensation Professional of the Year 2016, Co-Chair AMICUS Committee California Chamber of Commerce. He is the former GVP Risk management Safeway /Albertson's Former Board Member California Self Insurers' Security Fund, former Co-Chair California Chamber of Commerce AMICUS committee Chair California Fraud Assessment Commission Zenith Insurance Company VP Claims HIH (C.E.Heath) (Care America) S.V.P. Claims. References

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