Common reporting errors: An important message from Employer Audit Services
An effective revenue audit program is a key component in ensuring the integrity of our self-reporting insurance plan.
Our Employer Audit Services department conducts quality audits or investigations on employer reporting and provides employers with on-site guidance on reporting and remitting their proper share of premium revenue as required by the Workplace Safety & Insurance Act (WSIA).
During the course of a payroll/classification audit, a WSIB Field Auditor may discover errors in an employer’s reporting of the firm’s business activities and insurable earnings to the WSIB. The most common reporting errors resulting in an audit adjustment are:
1. Classification of business activities
The WSIB’s decision to assign a Classification Unit and Rate Group is based on the employer’s description of the firm’s business activities. “Business activity" means any operation which relates to producing a product, selling goods, or providing a service. An auditor may decide to change the classification of an employer’s business activity after touring the premises, for example, and obtaining more information about the firm’s operations.
Changing the classification of a business activity may involve:
- changing an employer’s Rate Group from one to another, due to incorrect classification of a business activity
- changing the Classification Unit without changing the Rate Group
- adding a new Classification Unit within an existing Rate Group
- adding a new Rate Group to the account in order to accommodate a new business activity
- deleting a Rate Group because of a discontinued business activity.
In most cases, if the Rate Group changes, the reclassification will mean a change in the premium rate as well.
2. Calculating insurable earnings
The employer uses each worker’s gross insurable earnings as the base to calculate WSIB premiums. Gross earnings include:
- the amounts usually reported on a worker’s earnings statement including room and board, bonuses and commissions
- any income reported in box 14 of the T4 slip as gross earnings; these amounts include deductions for income tax, CPP, and employment insurance.
Common errors when calculating insurable earnings are:
- not including taxable benefits
- not reporting occasional labour amounts
- incorrect calculation of excess earnings.
Excess earnings are earnings of an individual worker that are above the annual maximum insurable earnings ceiling set by the WSIB each year. Excess earnings are not insurable and premiums are not paid on them.
For a general listing of insurable and non-insurable earnings, see the annual Reconciliation Guide (994k, pdf) under the heading ‘Calculating Insurable Earnings’.
3. Reporting contractors
In the construction industry, employers may be referred to as ‘principals’. A principal is an employer who retains contractors to execute work and is liable to pay premiums on amounts paid to the contractors or subcontractors. In other words, the principal is the person letting the contract or purchasing the services of the contractor or subcontractor.
Principals sometimes do not report payments to contractors who the WSIB considers are their workers. In these cases, the employer may have failed to ask the WSIB to determine the status of the contractors as employers, workers, or independent operators. Contractors may include individuals who work only occasionally.
If the WSIB discovers that a principal has hired contractors without obtaining Clearance Certificates or rulings on their status, and has not reported them to the WSIB as workers, the auditor will determine their status within the contracted relationship. Where required, the auditor will ensure that the principal reports the labour portion of payments to the contractors. This could result in a retroactive adjustment to the principal’s reported insurable earnings.
A principal can also be held liable for unpaid premiums on a registered contractor's account if the WSIB cannot recover the amounts owing from the contractor.
For more information on contractors and who is considered a worker under the WSIA, see the annual Reconciliation Guide (994k, pdf) under the heading, ‘Who is a Worker’.
4. Executive officer deductions
The WSIB considers executive officers to be a select group of individuals who control the direction of the entire organization rather than just a department or branch. Operation Policy Manual (OPM) document 12-03-03 (Who Can Obtain Optional Insurance) and the annual Reconciliation Guide (994k, pdf) provide a detailed listing of the positions that qualify as executive officers.
Individuals employed by corporations who meet the following criteria are considered to be executive officers for WSIB purposes:
- The individual must hold an officer or director title that is specifically listed on the chart found in OPM document 12-03-03
- The individual must be listed in the Corporate Minute Book as holding the title listed on the chart
- The corporate status of the individual must be verified in documents or public records filed with other government authorities. These include articles of incorporation and the Corporate Profile/Point of Time Reports from the Ministry of Government Services.
Common reporting errors include the following:
- Deducting earnings for individuals not considered executive officers by the WSIB
- Not deducting earnings for individuals who are considered executive officers by the WSIB.
For more information about executive officers, see the annual Reconciliation Guide (994k, pdf) under the heading, ‘Who is a Worker’.
5. Allocation of insurable earnings for multi-rated firms
Auditors will verify that multi-rated firms have properly segregated wage records for the direct earnings to be reported under each rate group. If the payrolls for the rate groups are not segregated, the auditor will make an adjustment.
Auditors also verify the calculation of “common earnings.” These are earnings from ancillary operations that support more than one business activity and cannot be directly assigned to a single Classification Unit. Examples of common earnings would be earnings for staff in the administration areas of the firm’s operations.
Common earnings must be prorated over the direct earnings of the relevant Classification Units. If the employer has incorrectly prorated the common earnings over Classification Units in different rate groups, the auditor will recalculate the proration and adjust accordingly.
Example
An employer carries on four different business activities and is classified in four different Classification Units. There is one Administrative Assistant supporting all four business activities but this employer could not maintain segregated wage records for the Assistant’s time spent on each business activity. In this example, all of the insurable earnings of the Administrative Assistant are common earnings and must be pro-rated over the direct insurable earnings in each Classification Unit. Each pro-rated portion is then assigned to the appropriate Classification Unit.
For more information on how to prorate common earnings, see the annual Reconciliation Guide (994k, pdf) under the heading, ‘Calculating Insurable Earnings’.
For more information, contact Employer Audit Services:
- Toll-free at 1-800-387-5674
- Within the GTA at 416-344-3626 or 416-344-3628
- By fax at 416-344-6508.
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