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An Act to provide incentives for productive workers compensation audits. |
Be it enacted by the Senate and House
of Representatives in General Court assembled, and by the authority of the
same, as follows:
SECTION 1. Chapter 152 of the General Laws, as appearing in the 2006 Official Edition, is hereby amended by inserting, after section 25U, the following section:–
Section 25V. Application for coverage; reporting payroll; payroll audit procedures; penalties.
(1)(a) Any employer who knowingly submits an application for workers’ compensation coverage that contains false, misleading, or incomplete information provided for the purpose of avoiding or reducing the insurance premium shall be punished in the manner provided by subsection (3) of section 14 of chapter 152 of the General Laws.
(1)(b) An application for workers’ compensation coverage shall contain a statement that the filing of an application containing false, misleading, or incomplete information provided for the purpose of avoiding or reducing the insurance premium shall be punished in the manner provided by subsection (3) of section 14 of chapter 152 of the General Laws; a sworn statement by the employer attesting to the accuracy of the information submitted; and a sworn statement by the agent attesting that the agent explained to the employer or officer the classification codes that are used for premium calculations.
(2) The division of insurance, in consultation with the department, shall establish by rule, the minimum requirements for payroll audits and classifications in order to ensure that the appropriate premium is charged for workers’ compensation coverage. The rules shall ensure that audits performed by both carriers and employers are adequate to provide all sources of payment to employees, subcontractors, and independent contractors that have been reviewed and that the accuracy of employee classification has been verified. The rules shall provide that employers in all classes other than the construction class be audited biennially and may provide for more frequent audits of employers in specified classifications based on factors such as premium, type of business, loss ratio, or other relevant factors. In no event shall employers in the construction class, generating more than the premium required to be experience rated, be audited less than annually. The annual audits required for construction classes shall consist of physical onsite audits. Payroll verification audit rules must include, but need not be limited to, the use of state and federal reports of employee income, payroll and other accounting records, certificates of insurance maintained by subcontractors, and duties of employees. At the completion of an audit, the employer or officer of the corporation and the auditor must print and sign their names on an audit document and attach proof of identification to the audit document.
(3) Each employer must submit a copy of the quarterly contribution report required by the department pursuant to section 45 of chapter 151A of the General Laws at the end of each quarter to the carrier, and submit self-audits supported by the quarterly contribution reports. The reports must include a sworn statement by an officer or principal of the employer attesting to the accuracy of the information contained in the report.
(4)(a) Employers shall make available all records necessary for the payroll verification audit and permit the auditor to make a physical inspection of the employer’s operation. If the employer fails upon request of the auditor to provide access to the documents specified in this section and the carrier cannot complete the audit as result, the employer shall pay $500 to the carrier to defray the costs of the audit.
(4)(b) If an employer fails to provide reasonable access to payroll records for a payroll verification audit, the employer shall pay a premium to the carrier or self-insurer not to exceed three times the most recent estimated annual premium.
(5)(a) If an employer understates or conceals payroll, misrepresents or conceals employee duties so as to avoid proper classification for premium calculations, or misrepresents or conceals information pertinent to the computation and application of an experience rating modification factor, the employer, or the employer’s agent or attorney, shall pay to the insurance carrier a penalty of 10 times the amount of the difference in premium paid and the amount the employer should have paid plus reasonable attorney’s fees. An aggrieved insurer may institute a civil action in superior court to enforce this section.
(5)(b) If the Division of Insurance determines that an employer has materially understated or concealed payroll, has materially misrepresented or concealed employee duties so as to avoid proper classification for premium calculations, or has materially misrepresented or concealed information pertinent to the computation and application of an experience rating modification factor, the department shall immediately notify the employer's carrier of such determination. The carrier shall commence a physical onsite audit of the employer within thirty days after receiving notification from the department. If the carrier fails to commence the audit as required by this section, the department shall contract with auditing professionals to conduct the audit at the carrier's expense. A copy of the carrier's audit of the employer shall be provided to the department upon completion. The carrier is not required to conduct the physical onsite audit of the employer as set forth in this paragraph if the carrier gives written notice of cancellation to the employer within thirty days after receiving notification from the department of the material misrepresentation, understatement, or concealment and an audit is conducted in conjunction with the cancellation.
(6) If an employee suffering a compensable injury was not reported as earning wages on the last quarterly contribution report filed with the Division of Insurance before the accident, the employer shall indemnify the carrier for all workers' compensation benefits paid to or on behalf of the employee unless the employer establishes that the employee was hired after the filing of the quarterly report, in which case the employer and employee shall attest to the fact that the employee was employed by the employer at the time of the injury. Failure of the employer to indemnify the insurer within twenty-one days after demand by the insurer is grounds for the insurer to immediately cancel coverage. Any action for indemnification brought by the carrier is cognizable in the circuit court having jurisdiction where the employer or carrier resides or transacts business. The insurer is entitled to a reasonable attorney's fee if it recovers any portion of the benefits paid in the action.