How do you folks handle workers comp refunds? I usually get one each year and it skews my monthly expense if I book it as an offset. Refund amount was 29,000 and typical expense is 15,000 to 20,000 per month. This isn't a dividend. The dividend we get goes to other income. Just curious. Thanks!
Accounting For Workers Comp Refunds
If you're receiving a refund, then you overpaid (i.e. over expensed) during the course of the year. The refund has no characteristics of revenue or a dividend (assuming you are merely paying an insurance carrier) so the proper treatment would be to put the refund back through the expense line. If this always happens and your estimate of the annual expense is better than the premium the carrier decides to charge you, consider booking a lower monthly expense and record a small receivable monthly that will accumulate to closely offset the refund. However, your estimate must be based on something reasonable (e.g. you ALWAYS get a refund of $25k to $30k). Otherwise, I would just record the premium as expense and record the refund as a reduction of expense upon receipt.
I agree with Nick's response on the
There might be a caveat to what Edward posted if you're in the construction industry where workers' comp is based on your payroll, but also on uncovered subcontractors.
Also, make sure the employees are classified correctly too, as you might be overpaying because of misclassification of employees. At the time of your audit you may have a clerical employee classified at a higher level and their being adjusted to the correct code.
Even if you are in construction your premiums shouldn't fluctuate that much, so I'd be concerned with why you're paying the 12-16% Edward mentioned.
Because you are getting refunds, I am assuming you are in a private insurance state. For our states with private insurance we know the exact rate of coverage either per hour or dollar of payroll when we bind the coverage. So we create a prepaid expense account with all payments to the insurance company going to that account and expense the proper amount each payroll. That way, you are matching the expense to the period when work is performed. If done correctly, your prepaid amount will match your refund (net of any audit fees charged by the carrier). This method is also helpful for companies with a large first payment to bind coverage, say one third down on the premium estimate with two thirds being billed throughout the year.
Is this information still current? We are receiving large rebates from BWC that is creating a negative balance on our Fringe Benefit expense line. The county I work for has made each agency create a revenue line for these rebates because they are so large and because the offset is not properly recording the fringe benefit liability. The document from the state indicates this is not a match to the premiums paid, rather a result of a dividend from investment returns.
Any feedback would be appreciated