Premium Audit Glossary

A

Audit/Premium Audit
An examination of the insured’s financial records to determine the insured’s final earned premium.

Auditor/Premium Auditor
The person performing the examination of the insured's financial records.

B

Basic Classification
The four digit numerical class code that is used to describe the insured’s business operation.

Blanket Waiver of Subrogation
An endorsement within the policy that indicates that valid claims which occurred on the premises of others (clients) will be paid by the insurance carrier and no litigation sought against others due to fault. A 2% surcharge is added to the rate of all classifications for this additional coverage.

C

Contractor Controlled Insurance Program
See “Owner Controlled Insurance Program.” Same as an Owner Controlled Insurance Program, but provided by the general contractor rather than the owner.

Certificates of Insurance
Certificates from subcontractors verifying that the subcontractors in question have their own workers’ compensation insurance.

Classification System
The object of grouping employers into classifications so that each classification reflects the exposures common to those employers.

Classification Wording
The description of the type of business operation or employee duties included within a basic classification or standard exception classification.

Clerical Office Employees
Code 8810 - Employees engaged exclusively in bookkeeping, in record keeping, in correspondence, or in other office work where books and other records are kept or correspondence is conducted. Must be separated from other operations by structural partitions (floor to ceiling) and may not perform non-clerical functions. Clerical office employees are to be classified as code 8810 unless "Clerical" is included within the bassic classification's wording. Code 8810 is not eligible for division of payroll.

D

Drafting Employees
Code 8810 – Employees engaged exclusively in drafting and confined to office work. Must be separated from other operations by structural partitions (floor to ceiling) and may not perform non-clerical functions. Drafting employees are to be classified as code 8810 unless "Clerical" is included within the basic classification's wording. Code 8810 is not eligible for a division of payroll.

Drivers, Chauffeurs and their Helpers
Code 7380 – Employees engaged in such duties on or in connection with a vehicle. Drivers are to be classified as code 7380 unless “Drivers” is included within the basic classification’s wording. Code 7380 is not eligible for division of payroll.

Division of Workers' Compensation Independent Subcontractor Agreements
Independent subcontractor agreements between a general contractor or other type of employer and a subcontractor to either exclude or include the subcontractor from coverage. The subcontractor may not be excluded and the agreement deemed invalid if the subcontractor does not meet the requirements to be considered an independent contractor per the Texas Workers’ Compensation Manual.

E

Executive Officers NOC
Code 8809 – Executive officers (of a corporation or professional association) performing clerical or outside salespersons duties only – not superintendents, foremen or workers. Also applies to members, managers, and managing members of limited liability companies. Executive officers, members, managers, and managing members performing duties other than clerical or outside sales shall be classified in the same manner as other employees. Code 8809 is not eligible for division of payroll except with code 0401 – Cotton Gin – All Employees or code 7421 – Aircraft or Helicopter Operation: Transportation of Personnel: Flying Crew.

Exposure Base
The actual payroll amount that is used to calculate the insurance policy premium.

G

Governing Classification
The classification, other than a standard exception classification, that produces the greatest amount of payroll.

Gross Payroll
Total payroll, including regular, overtime, vacation, sick, etc., before any deductions.

I

Interchange of Labor Rule
Some employees, who are not miscellaneous employees, may perform duties directly related to more than one classification. An example would be an employee who performs clerical duties for an auto parts store, but is also required to work at the sales counter. When there is such an interchange of labor, the entire payroll of employees who interchange shall be assigned to the highest rated classification representing any part of their work.

Interim Reports
Monthly or quarterly reports sent in by the insured to report payroll by class code during the policy period. These reports may be done
online or on a paper form (mailed in). The insured also uses a calculation worksheet to calculate the associated premium and sends in payment with the report.

M

Miscellaneous Employees
Employees who perform duties conducted in common for separate operations which are subject to more than one basic classification. The payroll of any miscellaneous employees shall be assigned to the governing classification. Such employees include general superintendents, maintenance or power plant employees, elevator operators, shipping or receiving clerks and yard workers.

N

NOC (Not Otherwise Classified)
A classification designated “NOC” shall apply only if no other classification more specifically describes the insured business.

Notes
Normally referred to as “footnotes”. Notes are listed under certain classification wordings in the alphabetical class code listing within the Texas Workers’ Compensation and Employers’ Liability Manual. The notes provide additional information concerning the use of the class code in question.

O

Overtime
Overtime means those hours worked for which there is an increase* in the rate of pay:

  • For work in any day or in any week in excess of the number of hours normally worked, or
  • For hours worked in excess of 8 hours in any day or 40 hours in any week, or
  • For work on Saturdays, Sundays, or holidays.

*Must be paid at 1.5, 2.0, 2.5, or 3.0 X regular pay – does not include “shift pay” for odd hours.

Owner Controlled Insurance Program
The owner of a business or job project purchases a workers’ compensation policy to cover all subcontractors at the owner’s location or job project. Provided an insured has the appropriate certificate(s) of insurance and proof of the payroll (certified) reported to the program's administrator, the payroll amount attributed to the project will be deducted from the insured’s payroll and not counted toward the insured’s premium.

P

Payroll
Remuneration – means money or substitutes for money.

Payroll Division
The wages of individual employees may be divided into more than one basic classification when an employer is involved in construction, erection, mining, or oil and gas field operations. The division is also allowed when the employer is involved in multiple farming/ranching operations or the employer has a secondary trucking operation conducted as a separate and distinct business from the primary operation. The payroll division is contingent on the employer maintaining proper payroll records, including the hours of labor for each operation and the applicable payroll for those hours.

Physical Audit
A premium audit conducted by an auditor at the insured’s premises or CPA’s office.

Policyholder Report
Type of self-audit done by the insured either online or on a paper form (mailed in).

Premium
The amount paid by an insured for coverage under a workers’ compensation policy.

Premium Overtime
The extra pay above the regular hourly rate. For example, an employee is paid $10/hour for regular hours and $15/hour for overtime hours. The premium overtime is the extra $5/hour paid for the overtime hours, and this amount may be excluded from the payroll used to calculate the insurance policy premium.

R

Rate
The base price associated with each classification code which is charged per $100 of payroll.

Remuneration
See “Payroll.”

S

Salespersons, Collectors or Messengers – Outside
Code 8742 – Employees engaged in such duties away from the employer’s premises. May not deliver merchandise. Salespersons, Collectors or Messengers are to be classified as code 8742 unless "Salespersons," "Collectors," or "Messengers" is included within the basic classification's wording. Code 8742 is not eligible for division of payroll.

Secondary Business
An additional business operation that is not incidental to the primary business operation.

Specific Waiver of Subrogation
See “Blanket Waiver of Subrogation.” However, this type of waiver is for specific client locations, rather than all client locations. A 5% surcharge is added to the classifications applicable to the designated location(s), but is only charged for the payroll of the persons when working at the designated location(s).

T

Telephone Audit
A premium audit conducted over the telephone, rather than at the insured’s premises or CPA’s office.

Telephone Auditor
The person conducting the telephone audit.

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