THE DANGERS OF UNDERESTIMATING WAGES
Currently no penalties are in place if an Employer underestimates their wages at the beginning of a policy term in NSW. This is as long as the correct wages are declared at the end of the term.
Underestimating wages at the beginning of a policy term can occur for many reasons including acquisitions, new contracts, wage increases etc. In most occasions this is purely an oversight on the Employer’s part. There are occasions however where an Employer is very much aware of the under estimation but is also aware that there will be a “catch up” in premium at the end of the policy term.
Unfortunately over the last 12-18 months, we have come across a number of situations where the increased premiums have been alarmingly large and unexpected.
If an Employer has not suffered claims of any great cost or is not part of a group the underestimation may not be as critical. Any additional premium would be a reasonably straight forward calculation.
The cases that we have witnessed recently have been a combination of substantial increase in wages and claims in the same year. The increase in wages increases the sizing factor which means in turn an increase in the premium cost of the claims. The Employer is not merely paying for the difference in wages but also paying for the additional claims costs.
If an Employer is part of a group then the increase in wages will also affect other members of the group especially if they have also had an increase in claims. The reason for this is the increase in the sizing factor which affects all members of the group.
For Employer’s who have had little or no claims previously this scenario can see premiums increase dramatically both for renewal and adjustment periods.
If your wage roll is expected to increase substantially, please ensure that you make your insurer aware of these possible changes to your estimate wages during the course of the policy period. We can advise you of the impact of the additional wages before you get the surprise bill that was not budgeted for.