PR WC Overview
What Is The Workcomp System?
The Workers Compensation Act (the "Act") sets forth the legal framework for the workers compensation system in Puerto Rico (work comp system). In broad terms, the work comp system consists of a compulsory workers policy coverage that every employer must acquire and renew every year. The local work comp system is monopolized by the Commonwealth of Puerto Rico through the State Insurance Fund (the "SIF").
The Act provides workers with protection against health risks in the workplace. It also provides immunity to employers in the event one of their workers suffers a work-related injury, accident, or death.
Industry Classifications
Industry classifications are the backbone of the work comp system, and they are grouped in the Classifications Manual. The Manual provides premium rates for each industry classification. Premium rate is directly related to the inherent risk of the industry and the accident experience. The higher the risk, the higher the premium.
Although generally an employer can only have one principal classification, which must be the one that better describes the general nature of the operation, it is possible to have certain exceptions assigned to employees that perform duties significantly different than the ones encompassed by the principal classification.
Annual Payroll Statements
For permanent policies, the Act requires the filing of a payroll statement on an annual basis. Said payroll statement must disclose the final payroll actually paid by the employee and an estimated payroll for the forthcoming year, as well as the applicable classifications and other relevant information.
The different employer classification premiums by each $100.00 of employer's payroll equals policy premium.
Although the SIF is responsible for assigning the proper classifications to the policy and ensuring compliance with the Act, it is up to the employer to properly assign the applicable classifications for each employee in the Annual Payroll Statement. Failure to do so may affect coverage and entail additional premium determinations later on.
Merit Rating System
The Merit Rating System allows the SIF to apply a discount on the basic premium of an employer or levy a surcharge on said basic premium according to the number and cost of individual accidents that have occurred during the two years previous to the first of July of the last fiscal year.
The amount and seriousness of accidents during a determined two year period will, in turn, serve to establish whether an employer will be granted a discount or will be levied a surcharge.
Subcontractors, Individual Employers, and Freelancers
The Act states that employers receiving services from subcontractors that do not have an effective policy with the SIF, must provide coverage under their own SIF policy.
From a workers compensation standpoint, an employer must treat its subcontractors without policy coverage as "employees" and provide coverage thereon under its own policy. Otherwise, it may be exposed to Statutory Employer status in the event that an accident or death occurs to a subcontractor or its employees during the rendering of the service.
Under the foregoing circumstances, an employer's policy will cover for the accident inasmuch as the subcontractor duties were encompassed in said policy. Otherwise, the employer may end up picking the tab for all costs incurred by the SIF to treat the subcontractor's accident.
Accident Reporting
The Act requires employers to report the occurrence of an accident to the SIF within 5 days.
Typically, after an accident occurs the employer loses sight of the treatment costs and the disbursements issued by the SIF to the employee.
Auditing Process
The SIF is authorized by the Workers Compensation Act to conduct audits to employers. Audits are randomly conducted on employers every year, their amount and frequency determined by auditing personnel limitations.
Depending on the size and complexity of the employer's operation, an audit can last from several weeks to several years. The process is usually painstakingly carried out by the SIF and, in broad terms, involves the disclosure by the employer of all payments issued during a specific year(s) in connection with payroll and contracted services in order to compare those payments with the annual declared payroll statement.
Even though not formally enunciated, audits are principally aimed at finding deficiencies within an employer's premium history.