CPS Risk Assessment & Underwriting 2 — Questions and Answers
Question 1: A company misclassifies a roofer as a clerical worker for workers' compensation purposes. What is the primary financial risk?
- Lower premium refunds at audit
- Significant additional premium charges at policy audit (Correct answer)
- Cancellation of the general liability policy
- Reduction in experience modification rate
Correct answer: Significant additional premium charges at policy audit
Misclassifying high-risk workers as lower-rated classes results in substantial back-premium charges when the insurer audits payroll at policy year end.
Question 2: Which factor most directly affects a company's Experience Modification Rate (EMR) for workers' compensation?
- Total payroll dollar amount
- Number of full-time employees
- Actual claims history compared to expected losses (Correct answer)
- Industry-wide loss trends
Correct answer: Actual claims history compared to expected losses
The EMR compares a company's actual loss experience to the expected losses for its industry, rewarding or penalizing based on claims history.
Question 3: An underwriter is reviewing a contractor's payroll submission for workers' comp. Which payroll element is typically EXCLUDED from the premium calculation?
- Overtime premium (the extra half-time portion) (Correct answer)
- Regular wages
- Bonuses
- Vacation pay
Correct answer: Overtime premium (the extra half-time portion)
Most states allow exclusion of the overtime premium (the extra 50% portion above straight-time) from workers' comp payroll, reducing the premium base.
Question 4: Under the NCCI payroll cap rule, what is the maximum weekly payroll per employee used to calculate workers' compensation premiums for executive officers?
- There is no cap — full wages apply
- A state-specific maximum set by statute (Correct answer)
- The federal minimum wage multiplied by 52
- $1,500 per week uniformly across all states
Correct answer: A state-specific maximum set by statute
NCCI and individual states establish minimum and maximum payroll caps for executive officers that vary by state and are updated periodically.
Question 5: When a staffing agency places workers at a client site, workers' compensation coverage responsibility generally falls on:
- The client company exclusively
- The staffing agency, as the employer of record (Correct answer)
- The individual workers themselves
- The state workers' comp fund
Correct answer: The staffing agency, as the employer of record
Staffing agencies, as the employer of record for placed workers, typically carry the workers' compensation policy and include those workers in their auditable payroll.
Question 6: A payroll specialist notices that subcontractor payments were not documented with certificates of insurance. What is the risk exposure?
- The subcontractors become ineligible for unemployment benefits
- The client may owe additional workers' comp premium for uninsured subcontractors (Correct answer)
- FUTA penalties are triggered automatically
- The IRS will reclassify subcontractors as employees
Correct answer: The client may owe additional workers' comp premium for uninsured subcontractors
Without certificates of insurance, insurers may treat uninsured subcontractor payroll as covered payroll and charge premium on it during audit.
Question 7: Which report does an employer submit to the state to facilitate workers' compensation risk underwriting by providing detailed payroll by job classification?
- Form 940 Employer's Annual Federal Unemployment Tax Return
- Unit Statistical Report (USR) (Correct answer)
- Form 941 Employer's Quarterly Federal Tax Return
- OSHA 300 Log
Correct answer: Unit Statistical Report (USR)
The Unit Statistical Report (USR) provides insurers and rating bureaus with payroll and loss data by classification code used in workers' comp underwriting.
CPS Risk Assessment & Underwriting 2
A company misclassifies a roofer as a clerical worker for workers' compensation purposes.
What is the primary financial risk?