Interested in saving yourself some major expenses? Step no. one: keep accurate, honest employee classification records and payroll records for your employees. Here’s a cautionary tale to prove the point.

Recently a US drywall company contracted to provide drywall labor to a construction labor contractor—which classified former drywall workers as “member/ owners” instead of employees. While this may have saved a few bucks initially, at the end of a Wage and Hour investigation launched by the Department of Labor, the drywall company agreed to pay a total of $600,000 in back wages, damages, and penalties.

For workers compensation purposes, accurate employee classification and payroll records are also vital. Most trades are assigned two work comp classifications (called “dual wage classifications”) for payroll reporting. These different classifications allow employers in the construction industry to pay lower premiums for employees whose hourly wages are above a certain level. But to qualify for high-wage, low-rate classes, the employer must keep accurate—and verifiable—payroll records.

All you need is a timecard that accurately records your employee’s dates of employment, start and stop times, total hours worked, job duties, and wage rates. The  Worker’s Compensation Insurance Rating Bureau (WCIRB) requires employees to make the physical timecards available to work comp provider auditors.

Don’t have the required timecards? Then your work comp auditor will keep things simple by assigning all payrolls into the high-rate classification—and you may find yourself with unexpected premium owed at the end of the policy period.

A new study has found that 1 out of 6 construction workers in California is either misreported, or off the books entirely.  This puts employees in the position of being paid less than their worth, and puts companies in a legally precarious position. Respect your employees—and protect yourself and your company. Classify your employees accurately, and keep honest payroll records.

ContractorHelpers.com is a service of Insurance Partners, Inc., which has been providing quality protection for contractors for more than 35 years. California contractors insurance specialists work with companies on everything from California general liability and California workers compensation insurance to contractor bonds and a “pay as you sell” liability insurance program designed especially for homebuilders. If you have questions about your contractor insurance coverage, contact us.