Relates to ensuring proper payroll auditing of policies for workers' compensation insurance

Section 2 of the bill would amend WCL § 93 to authorize NYSIF to refuse to issue a policy to an entity or successor entity that owes a balance of unpaid premium on a policy cancelled for failure to cooperate with a payroll audit.

Section 3 of the bill would amend WCL § 95 to specify that NYSIF policyholders are required to provide NYSIF premium auditors with records containing information relevant to any policy period including any ledgers, journals, registers, vouchers, contracts, tax reports, payroll and distribution records, and computer programs for retrieving data and also records pertaining to a subcontractor.

Section 4 of the bill would amend subdivision 1 of § 131 of the WCL to specify that all employers are required to provide their WC insurers with records containing information relevant to any policy period including any ledgers, journals, registers, vouchers, contracts, tax reports, payroll and distribution records, and computer programs for retrieving data and also records pertaining to a subcontractor.

Section 5 of the bill would provide for an effective date of 90 days after enactment applicable to policies issued or renewed after that date.

Justification

This legislation would allow NYSIF to better determine appropriate premiums on the WC insurance policies it writes by providing authority to NYSIF to cancel a policy for the policyholder's failure to cooperate with a payroll audit.

THE IMPORTANCE OF PREMIUM AUDITS IN DETERMINING WC PREMIUMS

WC premiums are based on a rate applicable to the classification of work performed by an employer's employees multiplied by the payroll applicable to those employees. All WC insurers have the right under the WCL (see §§ 95 and 131) to audit their policyholders' records to verify that the amount of payroll and number of employees reported by the policyholder at the beginning of the policy period are accurate and that the nature of the policyholder's business is consistent with the classification of its employees for rating purposes. Without this tool, an insurer cannot assess the extent of the risk posed by the policyholder's business and determine appropriate premiums.

Premium audits are particularly crucial for NYSIF because of its unique place in the WC insurance market. NYSIF is the insurer of last resort for WC. NYSIF must insure any employer that applies for WC insurance, regardless of the risk posed by that employer's operations or payment history (unless that business or a prior business entity with the same ownership owes a balance on a prior cancelled policy). In contrast, private insurers are entitled to select their risks and may refuse to insure any employer they believe may not provide accurate payroll information.

Current law allows NYSIF to cancel a WC policy only for non-payment of premium. Private WC insurers, on the other hand, may cancel a policy on any ground merely by providing the policyholder with 30 days' advance notice. If a private insurer has difficulty obtaining an audit, it may either cancel the policy or refuse to renew the policy at the next policy anniversary. Unlike private insurers, NYSIF must continue to provide coverage unless the policyholder defaults on its premium payments even if NYSIF is unable to gain access to the policyholder's books and records.

In cases where a policyholder does not permit NYSIF to conduct a premium audit, this proposal would allow NYSIF to cancel the policy rather than continue to keep the policy in force until a default in premium eventually occurs.

This proposal would benefit the majority of NYS1F policyholders. When some policyholders are able to underpay premiums by avoiding audits, NYSIF nonetheless has to fund the liabilities resulting from claims against these policyholders. This is ultimately felt by other NYS1F policyholders, many of which are small businesses, in the form of higher premium charges. Having authority to cancel a policyholder for its failure to cooperate with an audit will allow NYSIF to get better cooperation from policyholders in obtaining audits.

SAFEGUARDS FOR NYSIF POLICYHOLDERS

To assure that employers who miss appointments with payroll auditors in good faith do not have their NYSIF policies cancelled unnecessarily, this proposal permits cancellation only if the policyholder fails to keep at least two appointments with a payroll auditor during such policyholder's regular business hours upon being provided advance written notice of such appointments or fails to furnish relevant business records in the course of a payroll audit. In addition, NYSIF would be required to send a warning notice at least 15 days in advance of sending a notice of cancellation. Even after a cancellation notice is sent, the employer would be provided a full 30 days' advance notice before cancellation would take effect. This would provide policyholders a full 45 days to act to avoid losing coverage after missing the first two appointments.

Even after cancellation takes effect, policyholders who allow NYSIF to conduct an audit on their cancelled policy would be eligible to obtain a new policy with NYSIF. NYSIF would also have discretion to reinstate the cancelled policy erasing any gap in coverage for any employer that NYSIF concludes is acting in good faith to pay NYSIF what it is owed.

CLARIFICATION OF WHICH RECORDS TO WHICH INSURERS HAVE ACCESS

This legislation would also amend WCL § 95 and § 131 concerning audits performed by NYS1F and private insurers to specify the types of records that would be considered payroll records subject to audit by the insurance carrier. These would include any ledgers, journals, registers, vouchers, contracts, tax reports, payroll and distribution records, and computer programs for retrieving data and any other records that the WCB is entitled to inspect as specified under WCB regulations.

Language would also be added to clarify that payroll records for services provided under a subcontract of the policyholder relating to individuals that are not covered under the policy of the subcontractor be maintained by the policyholder and made available for audit since these individuals might be covered under the policyholder's policy. This would help insurers determine the appropriate premium for coverage of such individuals since they may be determined to be the employees of the policyholder for WC purposes.

Other changes made to WCL § 95 (which pertains to NYSIF specifically) are intended to conform it with changes made to WCL § 131 (which pertains to all insurers) as part of reform legislation in 2007 (Chapter 6, Laws of 2007).

Prior legislative history

In 2014, this proposal was introduced as S.7862.

Fiscal implications

None known.

Effective date

The legislation would take effect immediately.