Insights

Workers’ compensation claims have a variety of different costs associated with them. Some of these costs are expected costs, while others are unexpected. Here’s the difference between these terms:

• Expected costs are those that are covered
  by workers’ compensation insurance. Such
  expenses are commonly referred to as direct
  costs.
• Unexpected costs are those that workers’
  compensation insurance does not cover.
  These expenses are commonly referred to
  as indirect costs.

WCI – Direct and Indirect Workers’ Compensation Costs Explained

The way project owners evaluate and manage risks on construction projects and make fiscally responsible decisions to ensure timely project completion are crucial to their success. Since private owners cannot afford to gamble on a contractor whose reliability is uncertain or who could end up bankrupt halfway through the job, a surety bond is a great safety net for the investment.

What is Suretyship?

Suretyship is a very specialized line of insurance that is created whenever one party guarantees performance of an obligation by another party.

A surety bond is a written agreement that includes three parties:

• The principal is the party that undertakes the obligation.
• The surety company guarantees the obligation will be performed.
• The obligee is the party who receives the benefit of the bond.

There two main types of surety bonds, contract (or corporate) surety bonds and commercial surety bonds.

Contract (or Corporate) Surety Bonds

Contract (or corporate) surety bonds provide financial security and construction assurance for building and construction projects by assuring the project owner (obligee) that the contractor (principal) will perform the work and compensate certain subcontractors, laborers and material suppliers, as outlined via their contract. Contract surety bonds include the following:

• Bid bonds provide financial assurance that the bid has been submitted in good faith and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds.
• Performance bonds protect the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
• Payment bonds guarantee that the contractor will pay certain subcontractors, laborers and material suppliers associated with the project.
• Maintenance bonds guarantee against defective workmanship or materials for a specified period.
• Subdivision bonds make guarantees to cities, counties or states that the principal will finance and construct certain improvements such as streets, sidewalks, curbs, gutters, sewers and drainage systems.

Commercial Surety Bonds

Commercial surety bonds guarantee performance by the principal of the obligation or undertaking described in the bond. Commercial surety bonds include the following:

• License and permit bonds are required by state law or local regulations in order to obtain a license or permit to engage in a particular business (e.g., contractors, motor vehicle dealers, securities dealers, employment agencies, health spas, grain warehouses, liquor and sales tax).
• Judicial and probate bonds, also referred to as fiduciary bonds, secure the performance on a fiduciaries’ duties and compliance with court orders (e.g., administrators, executors, guardians, trustees of a will, liquidators, receivers and masters). Judicial proceedings court bonds include injunction, appeal, indemnity to sheriff, mechanic’s lien, attachment, replevin and admiralty.
• Public official bonds guarantee the performance of duty by a public official, (e.g., treasurers, tax collectors, sheriffs, judges, court clerks and notaries).
• Federal (non-contract) bonds are required by the federal government (e.g., Medicare and Medicaid providers, customs, immigrants, excise, and alcoholic beverage).
• Miscellaneous bonds include lost securities, lease, guarantee payment of utility bills, guarantee employer contributions for union fringe benefits and workers’ compensation for self-insurers.

How is Suretyship Similar to Other Forms of Insurance?

It’s important to recognize the similarities between suretyship and other forms of insurance:

• State insurance commissioners regulate both suretyship and other insurance.
• They both provide a safety net for financial loss.

How is Suretyship Different?

Key differences exist between suretyship and other insurance:

• In traditional insurance, the risk is transferred to the insurance company. However, in a suretyship, the risk remains with the principal and the protection of the bond is designated for the obligee.
• In traditional insurance, the insurance company assumes that part of the premium for the policy will be paid out in losses. Yet, in true suretyship, the premiums paid are “service fees” charged for the use of the surety company’s financial backing and guarantee.
• In underwriting traditional insurance products, the goal is to “spread the risk,” while in a suretyship, surety professionals view their underwriting as a form of credit. Therefore, the emphasis is on the pre-qualification and selection process.

Government Regulations

The current federal law on federal public works is known as the Miller Act, which requires performance and payment bonds for all public work contracts in excess of $100,000 and payment protection, with payment bonds the preferred method, for contracts in excess of $25,000. Almost all 50 states, the District of Columbia, Puerto Rico and most local jurisdictions have enacted similar legislation requiring surety bonds on public works as well.

Protect Yourself With Surety Bonds

By obtaining a surety bond, you can transfer the risks associated with completion dates and quality concerns to a surety company. Contact our expert team at 203-834-5900 today to obtain a surety bond and protect your business.

 

At most condo communities, a homeowners association (HOA) is equipped with an insurance policy that provides coverage for incidents that occur outside of a condo owner’s personal unit. This is commonly known as a master policy, and some condo owners wrongfully assume it is adequate enough to account for all incidents that occur in a shared area of the property, like lobbies, stairwells, pools and outdoor spaces.

However, in the event that damages from an incident exceed the limits of the HOA’s master policy, all condo residents may have to pay out of pocket for any losses, even if they were not at fault. To avoid this, loss assessment coverage is a critical add-on all condo owners should consider.

What is Loss Assessment Coverage?

Loss assessment coverage is an add-on to standard condo policies. It provides much-needed protection in instances where owners of a shared property are held responsible for a significant portion of the costs associated with a covered incident. Examples of this may include the following:

• A major hailstorm occurs and causes $550,000 worth of damage to the condo building. While the HOA has a master policy, it only covers $500,000 worth of damage, leaving all condo residents to pay for the additional $50,000 of uncovered damage out of pocket.

• A visitor to the condo property injures themselves on the tennis court. Unfortunately, their injury bills exceed the HOA’s liability coverage, creating a major financial burden for condo residents.
• A fire breaks out and destroys a large portion of the lobby. The HOA’s master policy isn’t adequate enough to cover all of the damages, and condo owners are forced to pay a portion of the repairs.

Simply put, loss assessment coverage provides a safety net for condo owners, ensuring they do not have to pay for incidents that occur to shared property and exceed the limits listed in the HOA’s master policy. What’s more, loss assessment coverage can apply to property damage, liability, injuries that occur on condo property or deductibles.

The amount of coverage you need will depend on the limits listed in your HOA’s master policy. To learn more, and to secure a policy that’s right for you, contact Tooher Ferraris Insurance Group today.

As a business owner, you strive to hire qualified employees to work for you. Unfortunately, as you are well aware, not every hiring decision goes as planned. Even if an employee is terminated for legitimate reasons— such as poor attendance or unsatisfactory work habits—every termination opens the door for potential lawsuits. Read on to learn from one business owner’s experience and find out how employment practice liability insurance (EPLI) can help protect you and your organization from costly, frivolous lawsuits.

“If you have employees, you will get sued”.

Mary, Virginia Business Owner

When Mary, a Virginia business owner, received a complaint that her sales manager made crude, disparaging remarks to a female employee during a trade show, Mary took the claim seriously and conducted an investigation. During the course of her investigation, Mary spoke with another employee who witnessed the incident firsthand. According to this employee, the sales manager’s actions were offensive and harassing. Ultimately, after much deliberation, Mary fired the sales manager for his behavior.

Weeks later, the employee that witnessed the incident sued Mary for $500,000, claiming that after the incident, Mary had passed her up for promotion and assigned her poor sales territories, all because she came forward with the details of what happened at the trade show.

Although the lawsuit was groundless, Mary racked up hefty legal bills defending herself against the allegation.

Lawsuits like the one Mary faced can come out of left field and are much more common than you’d think. In fact, three out of five employers will be sued by a prospective, current or former employee while they are in business. EPLI can help mitigate these risks by providing the necessary resources to defend your company against a lawsuit or pay a claim.

As costs for litigation and damage awards climb, experts predict that employment liability will only become more complex. Call Tooher Ferraris Insurance Group today to learn more about EPLI and discuss your employment-related risks.

This guide will help you collect the necessary documentation and statistics required during a payroll audit. Because of the nature of the required information, it is recommended that this guide be completed by the accounting department, unless your organization has someone specifically responsible for these documents and the workers’ compensation policy. 

STEP 1: Collect Necessary Materials

• Payroll records (employee specific)
• Unemployment tax returns
• Form 1040 Schedule C (if sole proprietor)
• Tax reports (Federal Payroll 940s or 941s)
• General ledger, subcontractor ledgers and journal (or 1099s)
• Certificates of insurance for subcontractors
• Workers’ compensation (WC) insurance policy
• Employee information (compiled here)
• Corporate officer information (compiled here)
• Audit package totals (compiled here)
• Subcontractor information (compiled here)
• Certificates of insurance for each subcontractor
• Additional materials upon auditor request

STEP 2: Employee Information

Record the payroll information and classification of all employees except corporate officers. Class codes generally define the business and not the employees, with the exception of standard class exceptions (e.g., clerical, outside sales, other certain sales). This is a large potential problem area—if your business has a large WC rate, but you can put some of your employees in a standard class exception (like clerical), you can drastically lower premium to pay. In bold or italics, make sure to note that these standard class exceptions vary from state to state. The manual rate can be found on your WC policy.

Note: A portion of overtime can be subtracted from the total gross payroll. For example, if your firm pays time-and-a-half, you can take the total gross overtime amount paid and subtract .33 percent of that number from the total amount paid over a given year. This number counts as an excluded remunerations, which is further instructions in Step 4. 

STEP 3: Corporate Officer Information

In many states, officers have the option to remove themselves from coverage. States also have a maximum coverage, which needs to be located. Certain states, rather than a max, represent corporate officers as all earning the same (i.e. for workers’ compensation purposes they are all compensated $50,000).

STEP 4: Excluded Remunerations

Excluded remunerations vary from state to state so the list below may not be accurate for your location. Determine a complete list for your state by asking your agent, ratings bureau or insurance provider.

• Tips and other gratuities received by employees
• Payments by employer to group insurance plans
• The value of special rewards for individual invention or discovery
• Severance payments, except for time worked or accrued vacation
• Payment for active military duty for reservists called to active duty
• Employee discounts on goods, property, or services purchased from the employer
• Expense reimbursements to employees for legitimate business expenses (requires some record or receipt)
• The value of an employer-provided vehicle (e.g., a car or airplane)
• The value of an incentive vacation (for example, a sales leader might win a vacation)
• The value of a ticket to an entertainment event that is provided by the employer
• Supper money for late work
• Work uniform allowances

“Time-and-a-half” overtime is included as one of the columns under Employee Information. Overtime is therefore not listed above, but you will need to add it if your company determines overtime pay using a different—or multiple—calculation.

If the payroll amounts you entered under Employee Information or Corporate Officer Information include any of the following types of payments, then total such payments by employee and enter these values in the Excluded Remunerations column under Employee Information or Corporate Officer Information, as appropriate.

STEP 5: Audit Package Totals

Review the information you compiled in Steps 2 through 4, checking to make sure all areas have been addressed and all figures are correct. Organize the information in a list arranged by class code. Include payroll information along with any excluded remunerations that apply.

STEP 6: Subcontractor

This is only for subcontractors that do not have workers’ compensation of their own. Be sure to capture only the cost of payroll for the contract—as opposed to total quarterly cost of the contract—in order to prevent overpayment. 

STEP 7: Source Materials Checklist

Use this sheet to ensure that you have completed and compiled all necessary materials. Clip or bind them together and have it on hand to provide to your auditor upon arrival.

A Complimentary Review

Contact Tooher-Ferraris Insurance Group for a review of your classifications and exposures. Our specialized Workers Compensation experts will review up to three years of policy data to ensure your company has been accurately classified and charged. Call today 203-834-5900.