Why Should I Complete a Self-Audit?

If a member’s payroll has changed due to new hires or layoffs, they should complete the self audit to ensure that the payroll information used to calculate the premium is accurate.  Keeping payroll information up-to-date reduces the chance that additional premium will be due at the time of the actual audit or prevent overpayment. All over-payments will be applied to premium rather than returned to the member.

The self audit also allows members to ensure that their employees are classified properly.  The auditors who perform the actual audit are trained to identify misclassifications.  Misclassifications are another way to skew premiums resulting in overpayments or underpayments.  Included with the self-audit reports are guidelines to assist members with proper classifications.  Employees are occasionally misclassified as independent contractors.  The NH Department of Labor has tightened the definition of employee in the workers’ compensation statute.  There are now twelve criteria, all of which must be met in order for a person to be considered an independent contractor.  Pursuant to RSA 281-A:2.VI(b)(i):

            Any person… who performs services for pay for an employer, is presumed to be an employee.  This presumption may be rebutted by proof that an individual meet all of the following criteria:

1. The person possesses or has applied for a federal employer identification number or social security number, or in the alternative, has agreed in writing to carry out the responsibilities imposed on employers under this chapter.
2. The person has control and discretion over the means and manner of performance of the work, in that the result of the work, rather than the means or manner by which the work is performed, is the primary element bargained for by the employer.
3. The person has control over the time when the work is performed, and the time of performance is not dictated by the employer. However, this shall not prohibit the employer from reaching an agreement with the person as to completion schedule, range of work hours, and maximum number of work hours to be provided by the person, and in the case of entertainment, the time such entertainment is to be presented.
4. The person hires and pays the person's assistants, if any, and to the extent such assistants are employees, supervises the details of the assistants' work.
5. The person holds himself or herself out to be in business for himself or herself or is registered with the state as a business and the person has continuing or recurring business liabilities or obligations.
6. The person is responsible for satisfactory completion of work and may be held contractually responsible for failure to complete the work.
7. The person is not required to work exclusively for the employer.
8. The person receives compensation for work or services performed and remuneration is not determined unilaterally by the hiring party.
9. The person is responsible in the first instance for the main expenses related to the service or work performed. However, this shall not prohibit the employer or person offering work from providing the supplies or material necessary to perform the work.
10. The person is responsible for satisfactory completion o work and may be held contractually responsible for failure to complete the work
11. The person supplies the principal tools and instrumentalities used in the work, except that the employer may furnish tools or instrumentalities that are unique to the employer’s special requirements or are located on the employer’s premises.
12. The person is not required to work exclusively for the employer.

If the individual does not meet all of these criteria, they must be classified in the appropriate payroll class.  Please note that paying someone through a 1099 does not necessarily make them an independent contractor.

The NHADA WCT is happy to review revised payroll information at any time but members should review their payroll every June and compete the self audit if there has been a change.  If you have nay questions pertaining to self audits, actual audits or premiums, please contact us.