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Workers Compensation – The Pitfalls of Trying to Cut Costs

As Workers Compensation rates in Florida soar, with more potential double digit rate increases looming, small businesses are trying to find creative ways to cut their costs on workers compensation coverage.  The end result can be very costly for the business owner. Some people are trying a new, creative way to cut costs and that is to report lower than actual payroll, so that the initial cost will be lower. There are agents out there that will allow this, and will sometimes encourage it to get your business in the door.  Don’t do it. It is a trap!

This can end up costing you tens of thousands of dollars in the long run, in addition to being against the law.  Part of the fine print on the signature page of the Acord 130, FL Workers Compensation application, which you have to sign and have notarized to obtain coverage, states:   “If I file an application or application update containing false, misleading or incomplete information with the purpose of avoiding or reducing the amount of premiums for workers compensation coverage it is a felony of the third degree or as otherwise punishable as provided under the law”.

Another section  states: “That, in accordance with Florida statutes 440.381(6), If we understate or conceal payroll, or misrepresent or conceal employee duties so as to avoid proper classification for premium calculation or misrepresent or  conceal information pertinent to the computation and application of an experience rating modification factor, I (We) shall pay a penalty of ten (10) times the amount of the difference in premium paid and the amount we should have paid, and reasonable attorney’s fees”.   An example is:  You get a workers compensation quote based on payroll of $200,000 and your premium would be $15,000, but you decide to go to another agent for a quote and falsify your payroll. The quote is much lower at $5000, so you go that route. This is going to have huge impact financially.

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When it’s time for the annual workers compensation audit and you have to make your payroll records available (again, part of your contract), they will pick up the correct payroll amounts and you will have to pay the additional $10,000 immediately. Secondly, that would prompt them to look at your application and they would see the falsely reported payroll.  Then you would be subject to investigation for violation of the law, which could result in owing ten (10) times the amount of the difference.  In this case would be $100,000 plus court costs.  You then could have a 3rd degree felony charge.   Also, you will not be able get workers compensation anywhere until all of the balance is paid in full.  To compound things, if you do not cease working you are in violation of the workers compensation requirements set forth by the state and could be fined $1000 per day until you are able to get coverage again or cease operations.  If your payroll changes throughout the year and is corrected at audit there should be no issue.  The serious problem at hand is intentional misreporting of payroll.

As you can see, the old adage “honesty is the best policy,” still prevails.  There are no shortcuts and everything will eventually catch up, costing you far more than if you would have paid the correct amount in the beginning. To find out more about workers compensation insurance and what you may need for your business, call our office today at 407-855-1000.

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About the Author

Kathy Barton

Kathy is in her 26th year in the insurance industry and has knowledge in both commercial and personal lines insurance. She is coming up on her 3rd anniversary with Harry Levine Insurance and works as a commercial lines account executive.

Kathy currently sits on the board of directors for IIACF (Independent Insurance Agents of Central Florida) and is the chairperson for the 2017 Project Invest Program, in which insurance professionals share their knowledge and information about their career with local high school students.

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