This is a special service our company provides. It's designed for employers, policyholders, insurance agents and brokers who have concerns and questions about accuracy of their workers compensation experience modification rate, the ERM 14 and the EMR calculation process. To find out about our service, learn about its affordable fee, to discover more about the information we'll provide or for more information visit our Experience Modification Rate Review page.
The ERM 14 - Confidential Request for Ownership Information Form, is a workers compensation form developed by NCCI, the National Council on Compensation Insurance, to report changes in ownership. For many people this form seems somewhat complicated to complete. It asks for very detailed information about changes in ownership. That information is used to determine if the historical loss and payroll data should be applied to the new owner or new entity of a business. Experience rated employers who sell their business to another owner or entity have a workers compensation history. And it's this history that may make an impact on the new business owner's experience rating. In a nutshell the ERM 14 is the starting place used by an advisory organization or rating bureau to make a determination as to the combinability of the experience history between the old and new ownership entity. Information provided on the ERM 14 is the basis for this decision. Be sure to contact our office with your specific questions about an ERM 14 and its effect on your workers compensation policy.
On this page you will learn the purpose of this form, how to complete the ERM 14 form, why change in ownership information is required, and about the interactivity between ownership changes and ownership entities. You will also find direct links to NCCI on where to obtain an ERM-14 Form, how to complete it and where to submit the completed form. It's really not as scary as you may think!
About The ERM 14 - Workers Compensation Change In Ownership Form -
The ERM 14 is a form used to report changes in business ownership to a workers compensation rating bureau or advisory organization. It's the advisory organizations responsibility to maintain the experience rating plan for employers who qualify for experience rated policies. Be sure to visit our pages about Experience Rating and the Experience Modification Rate Process for detailed information on these topics. In order to gain a better understanding of why a form like the ERM 14 is required you do have to understand a little about the experience rating system.
ERM 14 - How It Effects Experience Rating -
Experience rating in its most simple understanding, is a method where a specific employers workers compensation policy data and loss experience is gathered, processed and compared to other employers conducting similar work processes. It compares how an employer is doing in regards claims as compared with other employers doing the same type of work. This data is then used to develop a specific experience modification rate or EMR for that employer. If an employers claims or loss history has been worse than others conducting the same type of work processes then they will be assigned a debit EMR factor. A debit factor is anything over a factor of 1. A credit factor is anything less than a factor of 1. That factor will be applied to the employers workers compensation premium calculation and have either a positive or negative effect. So an employer with a base premium of $30,000 and an EMR debit factor of 1.25 will actually pay $37,500 in premium. If the same employer had an EMR credit factor of .80 they would only pay $24,000. You'll find the developed EMR or experience modification rate is most affected by claims and loss history.
The workers compensation system is based on myriad of statistically developed factors used in everything from premium rate development to individual experience modification rates. Claims and losses play a very significant role in maintaining the validity of these factors and it cannot be stressed enough the role that continuity of this data plays. So it's the claim and loss data from the previous ownership entity that the ERM 14 will help determine whether will be carried forward to the new ownership entity and used on their policy or not.
And by now you should be able to see the relationship and how the ERM 14 plays an important role in maintaining continuity of loss history data from one owner to another.
ERM 14 - The Form and Information Required to Complete The Form -
This form is made up of multiple sections and columns and on this part of our page we will describe those sections and describe their purpose.
Section A of the ERM 14 - is the beginning point. It gives you the opportunity to choose from seven options the type of change that has occurred. Instructions provided with the ERM 14 indicate that you may chose as many as may apply to your individual ownership change situation.
Name and or Legal Entity Change;
Sale/transfer of a portion of or all of an entity's ownership interest in the business;
Sale/transfer of physical assets to another entity who takes over operations;
Merger or consolidation of entities;
Forming a new entity as a successor to another that may no longer operate, has dissolved or continues to operate only in a limited manner;
Formation of a receiver or irrevocable trust;
For determining combinability of individual entities.
As you can see this is a pretty comprehensive list that covers most all type of transactions possible. It addresses simple name or entity changes, sale or transfer of part, all or only physical assets of a business, mergers, new entities formed to take over existing business who have closed up operations, businesses who have been placed in receivership or trust and those who simply come together for consolidation purposes. As we mentioned this is the first section on this form that requires some response when completing. Once you chose all that may apply to your individual situation you will notice specific instructions are given for each choice on how to continue completion of the form. Section A looks something like this:
Let's chose item number two, "sale of all of an entity's ownership to another." Further instructions for this choice in Section A for this item will direct you to complete column A about ownership information before the change and column B for ownership information after the change. Again, each item will provide you with additional information on how to complete the form.
Section A also includes an area where you provide detailed information about the entities involved in the transaction. They begin just below the transaction chart described above. They are identified as Entity 1 - Column A, Entity 2 - Column B and Entity 3 - Column C and correspond directly with the information collection columns found on page 3 of the form.
This is where many mistakes are made in completion of this form!
Pay close attention to the directions given to you on the transaction list, described above, where you originally chose the type of changes. It's this list that directs how to complete the entity information! In our example above you will use column A for the ownership entity information before the change and column B for ownership entity information after the change. These must track with how you fill out the individual entity information in Section A.
Section B of the ERM 14 - deals specifically with Ownership of the individual entities involved in the transactions chosen in Section A. The first part of this section is made up of a series of questions used to gather specific ownership data of the entities. They will ask about common majority ownership between the entities, if assets were acquired, if there was a change in legal status of an entity or bankruptcy. These questions are used to gain a more complete picture of the ownership transaction.
In this section you will find a three column chart for entry of information. The columns on this chart are labeled Column A - Entity 1, Column B - Entity 2 and Column C - Entity 3. Under each of these you will be asked to provide the entity name and then the ownership information for each entity. If the entity is a corporation they want you to list the names of those owning 5% or more of voting stock and they will want to know how many shares each own. There is also specific information requested for partnerships and others. Section B columns look something like this:
Section C of the ERM 14 - is the catch all additional information section. You should know that this form was designed to capture most types of transactions and ownership changes. While it does a good job there are many other much more complicated transactions that will not fit into the format of this form. So the designers of the ERM 14 included Section C to provide a space for a brief narrative of the details not covered by the form. Here's where you are encouraged to describe in detail the transactions. If more space is needed you may attach additional pages on company letterhead and signed by an owner, officer or partner.
Section D of the ERM 14 - is a reminder list provided as a check list for you to use before submitting the form for consideration.
Section E of the ERM 14 - is the certification portion. This is where you list out who has completed the form, indicate which entity involved they are associated with and sign the form certifying the information submitted is correct.
Section F of the ERM 14 - is used by the rating organization.
Change of Ownership Rules - NCCI
NCCI Workers Compensation Rules about change in ownership can be found under Rule 3 of NCCI's Experience Rating Plan Manual. These manuals are not available for the general public however are available from NCCI by subscription only. Ownership rules are tied very closely to experience rating and are in place to assist in maintaining the integrity of the experience rating plan and historical claim and payroll data collected. When an owner sells a business the rules of ownership allow for the transfer of prior experience to the new owner. The very basic concept is that prior experience cannot be ignored just because there is a change in ownership. As a matter of fact it's generally accepted in the whole experience rating concept that prior history is an indicator of future experience. You will find that Rule 3 addresses:
Combination of Entities
Treatment of Prior and Future Experience of Parties Involved
Change of Ownership Issues to Consider -
When an owner sells their business they are also selling their prior workers compensation experience to the new owner. Many times the new owner may not be aware of this until after the deal is done. Remember, the workers compensation policy requires notification be made to the advisory organization within 90 days after the transaction is complete. This requirement is set forth by endorsement to the workers compensation policy. All workers compensation policies issued within the NCCI states must include the WC 00 04 14 Notification of Change in Ownership Endorsement which makes the 90 day requirement. Here are a few points to consider:
New owner is unaware about combinability of experience - Often overlooked is the effect a transfer of ownership may cause on a new owners experience modification rate.
You buy my business you buy my workers compensation experience - Not always the case but more than likely this will be the result of purchasing a business.
The prior experience will follow the new owner for several years - You can't get away from the experience. If the business you are acquiring has a worse experience history than your business, the transfer will probably have a negative effect on your future experience modification rate through the experience period. Maybe 3 but possibly up to 5 years!
New owner may experience a positive effect on current experience modification rate - And just the inverse is possible. If the new owner has acquired a business with a better experience history, it is possible that they will see an improvement in their experience rating!
As you can see a transfer of ownership may create many resulting effects on the experience rating of the new employer. It's all triggered by the required notification to the rating bureau.
Where To Find A Blank ERM 14 Form with NCCI instructions on how to complete the form -
As we mentioned above the ERM 14 was developed and used by NCCI or the National Council on Compensation Insurance. NCCI makes this form available in PDF format for anyone to use. You can access these on the NCCI website without charge or just use these links to access NCCI, the ERM-14 Form and special instructions on how to complete the form:
Once a form has been completed it must be submitted to NCCI, if that's your rating organization, for processing. Instructions indicate that completed forms may be given to your insurance company or agent and they will send them to NCCI for processing. You may also send the completed form, with any additional attachments, directly to NCCI by email, fax or snail mail:
NCCI Email: firstname.lastname@example.org
Fax to NCCI: 561-893-1191
Mail to NCCI at: 901 Penisula Corporate Circle, Boca Raton, FL 33487-1362
For Questions or Concerns About the ERM 14 -
You should always be able to contact your workers compensation insurance agent for questions you may have about this form, its use and assistance you may need completing one. You should also be able to contact your insurance company for help with questions you may have. And of course you may always contact NCCI, the advisory organization and authority on ownership changes for about 35 states, with your questions.
If you have experienced problems with ownership changes or need to have your ownership transfer or change reviewed from a workers compensation stand point just contact our office for information on the services we offer.
Work with an Independent Workers Compensation Consultant! - Remember, when faced with Premium, Audit or Experience Rating problem make sure you contact an independent consultant for help!