How to Prepare for Your Workers Compensation Audit

Your Workers Compensation insurance policy premium is rated based on annual payroll. When your policy is first issued, an estimated annual payroll is used looking ahead at the next 12 months.

In most cases, it’s almost impossible to forecast what your exact payroll will be for the next twelve months. Especially with hourly employees where schedules constantly fluctuate and you have peak seasons and slow periods.

So, when you buy a workers compensation insurance policy for the first time, or are renewing for a new policy term, annual payroll estimates are used to calculate the policy premium. and at the end of the annual policy term, the insurance carrier must do a premium audit to find out what the official payroll amounts are for the prior 12 months.

Let’s face it, audits suck. It doesn’t matter what kind of audit….insurance, taxes, you name it. Can you think of any audit that doesn’t suck? Unfortunately, workers compensation policy audits are not optional, they’re required by any and all carriers.

So, how should you prepare for your Workers Compensation policy audit?

The best way to prepare is by keeping proper records and documentation throughout the policy period. An audit is conducted based on the review of correct, organized records.

Since your workers’ compensation policy is payroll based, the following documents are typically needed by the auditor:

• Quarterly 941 tax documents/payroll registers
• Employee information, including:
  -Names
  -States
  -Description of duties
  -Gross wages
• Furloughed wages
• Contracted labor
  -Certificates of insurance for subcontractors, if applicable
  -Description, location and dates of work performed
  -Amount paid for contracted labor

What can I expect?

Your audit will be conducted in one of the four methods:

1. On-site physical
2. Electronic/virtual physical (counts as physical by all state bureaus)
3. Phone
4. Mail
   

The method is determined based upon multiple factors, including premium, complexity and state regulations. An auditor will reach out to you after your policy expiration via phone, email or letter to give you more information.

Yes, audits suck, but unfortunately there’s no way around it. As long as you’re organized and prepared with this information, hopefully your next audit will be smooth and painless and you can put it behind until next year where you have the joy of doing it all over again.

Enjoy!

-JK