NCCI Codes to be listed on Certified Payrolls

Workers Compensation Insurance Fraud

On every State of Alaska construction project it is a requirement to fill out the certified payrolls so as to verify the workers are receiving the correct pay for the class of work they are performing, be it ironworker, carpenter, electrician, etc. Unscrupulous contractors have learned that the state and unions watch these payroll records to ensure compliance with state law, so as a result misclassification in this manner is uncommon since it only amounts to a few dollars a week.

The area a contractor is able to make or "save" thousands of dollars is through the misclassification of workers on their workmans compensation insurance. I will use my craft as an ironworker as an example. Every job in the country is given a classification code by the National Council on Compensation Insurance (NCCI). Each code has a cost assigned to it for every $100.00 paid in wages.

The cost code for structural steel erection is 5059 in Alaska; the cost for this work is set at $53.15 for every $100 in wages paid. In contrast, the cost code for sheet metal work is 5538 and only $11.07 cost per $100.00. By recording an incorrect cost code contractors are able to "save" $40.00 between these codes. (Ironworkers wage is currently $49.57) These numbers are higher here in Alaska due to the added risk involved in our line of work and conditions unique to our state. It is fair to say it cost $25.00 - $35.00 to insure an ironworker every hour on the job. These rates are for the year 2007.

If a contractor fails to pay into the correct workers compensation pool by not reporting hours accurately then they are driving the cost of doing business up for all the legitimate contractors. These legitimate contractors must make up the difference in order to make the claims filed by injured workers doing steel erection match that of what is being paid in insurance premiums. At the same time the illegitimate workers compensation reporters are artificially reducing the base cost of workers compensation for those involved in sheet metal work. This also leads to a staggering amount of loss revenue to our insurance companies, who in turn must pass this loss on to other contractors by raising insurance rates.

The result of this type of misclassification can be seen by the cost codes over the last year alone. Steel erection (5059) has increased from $53.15 to $55.83 and sheet metal (5538) has decreased from $11.07 to $8.61 for every $100.00 in payroll.

Our insurance companies are not the only victims when a contractor fails to pay his fair share of workers compensation. Every contractor that bids a job with numbers that are a true reflection of the class of work done by their workers is also affected due to them being unable to "win" a bid with legitimate numbers when an unscrupulous contractor in effect "steals" a contract through deceptive bidding practices, which can only be described as fraud.

The problem is that it is impossible for others at this point to verify that our workers are correctly being protected with adequate workers compensation insurance since this information is not required to be made public, and with no public disclosure the door is open to commit fraud.

I encourage all business owners to write to Governor Sarah Palin, Linda Hall (Director of Insurance), Paul Lisankie (Director of Workers Compensation), and Click Bishop (Commissioner of Labor) and ask them to consider the following options.

1. Make a statutory change that would require NCCI codes and hours billed to each code be listed on certified payrolls.

1. Require copies of these certified payrolls are also mailed to the insurance carrier so as to allow them to police compliance instead of the State of Alaska.

1. Require that the Division of Insurance send its current investigators out to job sites to check compliance with the current laws.

These records are already required to be kept by business owners in order to pay the correct workers compensation rates and by making these documents a matter of public record it will greatly reduce the amount of fraud in Alaska.