Worker's Compensation Insurance

18 Prospective Rating The basic workers’ compensation rating formula illustrated above is called prospective rating. While workers’compensation premiums can be calculated using different rating plans (such as dividend plans or retrospective rating), prospective rating is the most common workers’ compensation premium calculation rating method. Businesses interested in learning more about workers’ compensation rating methods should contact a licensed broker-agent for further information. Premium Audit The final premium of a workers’ compensation policy cannot be calculated until the policy term is over and the employer’s payroll records have been audited. The final audit of payroll records determines if the initial payroll estimate was either high or low. If the payroll has gone up from the estimate, then the employer will owe additional premium. If the payroll has gone down from the estimate, then the insurance company will owe the employer a return premium. Since many employers experience fluctuating payrolls, some workers’ compensation insurers offer a monthly payroll reporting option. If monthly reporting is not available, the employer can work closely with its broker-agent or insurance company underwriter to report any large payroll fluctuations during the policy term. Corrected payroll estimates during the policy term can help minimize the possibility of a large premium audit bill or a large return premium, which can significantly affect the cash flow of a business.