What to Expect During Your Workers Compensation Audit

When we think of audits, especially audits associated with workers compensation insurance, they hold a negative connotation. However, it doesn’t have to be that way.  The key to a successful audit starts when you first take out the insurance policy.

Understanding the Logistics of a Workers Compensation Policy

A workers compensation policy is to cover your employees if they are injured during their job duties.  Therefore, the premium for a work comp policy is determined by employee payrolls multiplied by a rate established for that job based on risk, then dividing the result by 100.  In general, the more dangerous a job, the higher the premium.  It is important when taking out a policy that you give accurate payrolls, avoid the urge to try to reduce the premium upfront by lowballing the number, it will only cause headaches at audit time.  If you are under you will owe, and if you are over, you will get a return.

Audit Time

Audits are performed after the expiration of a policy term.  Your worker’s compensation carrier will notify you either by letter or by phone of the upcoming audit.  You will be able to schedule the appointment with the auditor at a time that is convenient for you.  During the audit, they will review your financial information for the policy term that just ended.  Be sure to give yourself adequate preparation time.  It will also help if you ask the auditor for a summary of the supporting documents they will need.

Commonly used documents include but are not limited to the following:

  • Accounting records
  • Tax forms like forms 941 and 944, or Employer’s Federal Tax Return
  • Cash disbursements records
  • Payments to independent contractors
  • Payments to subcontractors
  • Certificate of insurance for all subcontractors hired by you
  • W-2 and 1099 forms
  • Job descriptions accurately describing each job duty
  • Clear description of your business operations
  • Payroll information for the policy term. The auditor will verify all sources of pay including salary and bonuses provided to each worker.
  • Payroll limitations applicable to executive officers, partners, sole proprietors, etc. that are covered under the policy
  • Your experience rating worksheet

If you get confused as to what your auditor needs, we will be able to help you with gathering all documents and advise you the best way to organize the information for a smoother process.

Choosing a Workers Comp Carrier that is Right for You

We work with a variety of workers compensation carriers, and some of those carriers offer pay as you go workers comp policies.  With pay as you go, it may reduce premium because you are reporting payrolls on a monthly basis instead of guessing and having to pay for the difference at the end of the policy period.  However, being proactive at the beginning of the policy will eliminate a lot of the stress that goes along with audits.  Keep your payrolls as accurate as possible and be very clear on employee job descriptions.  This will allow us to rate your policy correctly from the onset.  It is also wise to have safety controls in place and provide home care for your employees as necessary.  Having a desirable loss experience will afford you a better rate as well.

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