If you carry workers’ compensation insurance, you can expect to go through an annual audit. While the word “audit” might sound intimidating, it’s actually a standard review process that helps ensure your business is properly classified and paying the right amount for coverage. As a business owner, understanding the basics of a workers’ compensation audit and knowing how to prepare can save you time, stress and most importantly, money! This guide will walk you through the essentials of a workers’ compensation audit, the key information needed, steps to prepare, common mistakes to avoid, and what to expect during and after the audit process.
What is a Workers’ Compensation Audit?
A workers’ compensation audit is a review conducted by your insurance company to verify that the premium you paid matches your actual payroll and business operations over the policy period. The audit ensures that your premium reflects the correct level of risk based on your actual payroll and employee classifications.
When your policy was issued, the premium was based on estimated payroll figures and employee classifications. At the end of the policy term, the insurance company conducts an audit to determine your actual numbers. This ensures that you’ve paid the correct amount — either resulting in a refund if you’ve overpaid or an additional bill if your payroll was higher than estimated.
Key Information Needed for an Audit
To facilitate a smooth audit process, you’ll need to provide:
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Payroll Records: Detailed records of your payroll, including wages, overtime, bonuses, and any other compensation.
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Employee Information: A list of employees, their job classifications, and their duties.
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Tax Forms: Copies of W-2’s, 941s and state unemployment returns, and IRS Filings
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Subcontractor Certificates of Insurance: If you use subcontractors, you’ll need their certificates of insurance and details of the work performed.
Having these documents organized and accessible will make the process faster and smoother.
Steps to Prepare for a Workers’ Compensation Audit
Preparation is key to a successful audit. Here are some steps to help you get ready:
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Organize Your Records: Ensure all payroll and employee records are up-to-date and easily accessible.
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Review Job Classifications: Verify that all employees are correctly classified according to their job duties.
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Check Subcontractor Documentation: Ensure you have valid certificates of insurance for all subcontractors.
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Consult with Your Insurance Agent: Discuss any changes in your business operations that might affect your audit.
Common Audit Mistakes and How to Avoid Them
Avoiding common pitfalls can make your audit process smoother:
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Incorrect Employee Classification: Misclassifying employees can lead to inaccurate premiums. Regularly review and update classifications.
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Incomplete Records: Ensure all necessary documents are complete and organized before the audit.
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Ignoring Subcontractor Coverage: Failing to verify subcontractor insurance can result in unexpected charges.
What to Expect During the Audit Process
During the audit, an auditor will review your records to ensure accuracy. This may be done in person, over the phone, or through a mail audit. The auditor will:
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Verify payroll amounts and employee classifications.
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Check for any discrepancies in reported data.
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Discuss any findings or adjustments needed.
After the Audit: Next Steps
Once the audit is complete, you will receive a report detailing the findings. If discrepancies are found, your premium may be adjusted. It’s important to:
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Review the Audit Report: Carefully examine the report for accuracy.
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Address Discrepancies: If you disagree with the findings, discuss them with your insurance agent or the auditor.
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Plan for Adjustments: Be prepared for any changes in your premium and adjust your budget accordingly.
Understanding and preparing for your workers’ compensation audit can help ensure a smooth process and accurate premium calculations. For more information or assistance with your audit, feel free to reach out to our agency. We’re here to help you navigate the complexities of workers’ compensation insurance and ensure your business is adequately protected.
