Provides incentives for productive workers' compensation audits

1 Co-sponsor

• Tony Avella

Title of bill

An act to amend the workers' compensation law, in relation to providing incentives for productive workers' compensation audits

Purpose

To prevent workers' compensation insurance fraud by ensuring that all employers in the State are appropriately classified.

Summary of provisions

Section 1 of the bill would add a new Section 112-A to the Workers' Compensation Law.

Paragraph (a) of subdivision one of such Section would require periodic audits, including but not limited to, payroll records verifications and onsite physical inspections, in order to determine each employer's unique experience-rated operations for premium calculations. Construction class employers shall be audited annually and all other employers not less than biennially.

Paragraph (b) of subdivision one such Section would make a knowing misrepresentation or concealment of material information in order to avoid proper classification for purposes of premium calculations, a fraudulent insurance practice in violation of applicable provisions of Workers' Compensation Law Section 114 and Penal Law Section 176.05. Subdivision two of such Section would exempt self-insureds from the provisions of the Section.

Subdivision three of such Section defines "construction class."

Section 2 of the bill sets forth the effective date.

Justification

In order to combat Workers' Compensation Insurance fraud and hold down premiums charged, especially in the construction industry, periodic audits are necessary. Productive employer audits are beneficial, since they (1) protect workers by ensuring adequate workers' compensation coverage; (2) true-up premium, often leading to return of premium or credits against future installments; and (3) provide adequate premium for the appropriate risk classification. For instance, a roofing contractor claiming to be a kitchen remodeler leads to data corruption at the New York Compensation Insurance Rating Board and ultimately in the rate-making at the Division of Insurance of the Department of Financial Services.

Often, employers who refuse an audit are attempting to avoid paying the appropriate Workers' Compensation premium. Experience in states that have a periodic audit statute in place (like Florida, California, North Carolina and South Carolina) shows that appropriate premium from an employer who refuses an audit may be in excess of established penalty provisions for such refusals. This bill would make clear the penalties for refusing to submit to the standard practice of audits of workers' compensation insurance policies, and would restate that refusal to permit an audit of payroll records and knowing misrepresentation or concealment of the number and type of employees and actual work performed could constitute criminal insurance fraud.

Legislative history

S 5376-B of 2013-14

Fiscal implications

None.

Effective date

This act shall take effect January 1, 2017.