What Is a Workers’ Comp Audit?

Once they have completed the audit, you will receive a final audit report that shows if you had more or less payroll than on your policy, resulting in an audit bill or refund. Our pay-as-you-go workers’ compensation solution allows you to automate insurance payments based on payroll. With our tools, business leaders can eliminate large down payments and avoid end-of-year surprises. We can even help you find the top-rated insurance carriers to keep you and your team covered. Workers’ compensation audits don’t have to be stressful if you stay organized throughout the year. Keeping accurate payroll records, properly classifying employees, and ensuring subcontractors have valid insurance will make the process much smoother.

The audit may result in premium adjustments based on the discrepancies found during the audit. These adjustments are calculated based on the difference between the reported and actual payroll and classifications. For example, if the payroll was underreported by $50,000, the premium might increase proportionally to reflect the additional risk. The auditor’s report will provide a detailed explanation of how the adjustments were calculated, ensuring transparency and understanding of the changes. Each year, your workers’ compensation premium is developed with an estimated payroll. The audit process is necessary to determine your final premium by using the actual, not estimated, premium basis.

If you’re a small business, your audit probably won’t be a huge hassle.

Instead of guessing, you pay as you go—making it a great fit for industries like construction or restaurants, where payroll fluctuates a lot. Since different jobs come with different levels of risk, job descriptions are key. These descriptions show the types of work your employees do, which helps in classifying roles. For example, an office worker has a different risk level than a construction worker and getting this right can prevent unnecessary audit corrections and disputes. This might involve video conferences, phone calls, and sharing documents electronically.

Prompt response is crucial as delays can lead to increased scrutiny and potential penalties. Engaging with the insurance provider early on can help identify and resolve any issues before they become significant problems 3. Failure to comply with a premium audit could result in surcharges to your workers’ comp rate that increase total cost of ownership. Working closely with your agent helps ensure an efficient, accurate audit process.

In some cases, your payroll may be less than anticipated, providing a premium decrease. The goal is to align your insurance costs with the reality of your workforce exposures. If you use independent contractors, make sure you have proof of their own workers’ compensation coverage by getting a certificate of insurance. Without that, the auditor will lump them into your payroll, which means extra costs. Imagine a scenario where your business has been underpaying workers’ comp premiums without realizing it.

Incomplete records can lead to discrepancies during the audit, causing delays and potential adjustments to premiums. Accurate records help ensure that premiums are calculated correctly and that the audit process is smooth and efficient. Audits are commonly triggered by policy renewals, significant changes in payroll, or discrepancies between reported and actual payroll.

What are workers’ comp audits?

• It can be as simple as setting up a regular check-in with your team to update records or creating a folder specifically for audit-related information.
• Each year, your workers’ compensation premium is developed with an estimated payroll.
• Even if you have prepared for audits on your own in the past, it never hurts to have a second set of eyes for review.
• Staying on top of these records all year can save you from last-minute scrambling when it’s audit time.
• Depending on if you owe money to your insurance company or are owed money from your insurance company, your workers’ comp premium audit might provide you with a refund.
• The audit may result in premium adjustments based on the discrepancies found during the audit.

Accurate data ensures that the premiums reflect the true risk of the insured business, maintaining fairness and financial stability within the insurance system. This process not only protects the insurance carrier but also ensures that businesses are not overpaying or underpaying for their coverage. During the audit, the auditor will review payroll records and job classifications, checking that all records are accurate and complete. They may also interview staff to verify information and ensure that employee classifications align with their actual duties. For example, an auditor might ask a foreman to explain the duties of different workers to ensure that they are properly classified.

For example, if an audit reveals that some employees were incorrectly classified in a higher risk category, the business can save on premiums by correcting these classifications. The audit may also reveal areas for improving efficiency and reducing costs, further benefiting the business. Ensure that all payroll and classification records are complete and accurate.

• When it’s time for a workers’ comp audit, an auditor will reach out to review your records.
• Alongside payroll reports, your quarterly tax returns, specifically Form 941s, are essential.
• The auditor’s report will provide a detailed explanation of how the adjustments were calculated, ensuring transparency and understanding of the changes.
• If you disagree with the audit findings, you can challenge them by following the procedure outlined in the auditor’s report.

What Happens During an Insurance Company Audit?

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Depending on your location, your budget, and the size of your business, you may have a few options for workers’ comp insurance carriers. After reviewing the documents and information provided during the appointment, the auditor will finalize the audit results. Our team of friendly, knowledgeable auditors will guide the policyholder through every step of the final audit process to make it as simple and easy as possible. We recommend the policyholder keep their documents on hand during the audit in case there are any questions during the review. Many businesses struggle with the required meticulous record-keeping, worried about the consequences of discrepancies between reported data and actual operations.

Double-check those employee classifications

A workers’ compensation audit can help you identify areas of improvement for the coming year. For example, it might be necessary to update employee classifications, upgrade your payroll software, or establish a better system for record keeping. Consult with your payroll company and insurance broker, as they may advise small changes that can make a big difference. The primary goal of a workers’ comp audit is to verify that your business paid the correct insurance premium over the last year. It helps prevent fraud and miscalculation, and serves as a guideline for rates in the coming year. ‍It ensures businesses pay the correct insurance premium based on actual payroll workers comp audit and job classifications.

The audit helps both you and the insurance provider stay on the same page about what your job positions in the company are and payroll for each updated on the policy currently in force. Worker’s compensation is one of the few remaining policies that if your payroll is less than what you projected, you will get premium returned. So, while an audit might seem like a hassle, it’s really about keeping things balanced and ensuring your payroll matches your policy. We encourage you to help your client feel more comfortable with the final audit process by letting them know it’s a standard part of the workers’ comp process and not a penalty.

They can clarify any questions you have regarding the audit, documentation required, or areas of potential confusion. If you disagree with the audit findings, you can challenge them by following the procedure outlined in the auditor’s report. This typically involves providing additional documentation to support your case and explaining any discrepancies in detail.

This gives the Texas Mutual auditor advanced time to review the documents and will speed up the appointment time. Once the documents are submitted, the contact will receive a confirmation email sharing they were successfully sent to the auditor. The audit looks at all of the wages you paid your employees and calculates what the premium should have been. Generally, the safer the workplace, the less the insurance costs because fewer accidents mean fewer claims. In short, it works pretty similarly to your car insurance on your personal vehicle. The cost of the insurance also depends on how much the employees are paid and the type of work they do.

For example, have payroll summaries, timesheets, and tax returns ready and organized. Being prepared reduces the likelihood of issues during the audit and ensures that the auditor can quickly and efficiently review all necessary information. The duration of the audit depends on the size and complexity of the business. Smaller businesses with straightforward payroll structures may only need a few hours, while larger companies with complex payrolls and multiple job classifications may take several days. For example, a small bakery might complete an audit in half a day, whereas a large construction firm might require a full week to review all records and verify classifications. The auditor will provide an estimate of the time required, but be prepared for the audit to take longer if discrepancies are found.

Often auditors request information on company financials in addition to payroll details. This article aimed to provide a comprehensive overview of what to expect during a workers’ compensation audit. It covered the purpose, types, and triggers for audits, as well as detailed the audit process and how to prepare for it.

Audits make sure everyone’s classified correctly so you’re paying the right amount. Running a business is no small feat—there’s always something to manage, and a Workers’ Compensation (Workers’ Comp) audit might be one of them. If your policy uses estimated wages, an audit is usually part of the package when it’s time to renew. Let’s dive into what a Workers’ Comp audit is, why it happens, and how you can handle it like a pro.

Your insurance company will ask for payroll records, like 941 forms and payroll registers, to double-check that wages and employee classifications are accurate. Because different jobs come with different levels of risk—and risk equals cost. Workers’ compensation insurance is essential for any small business with employees. It helps injured or ill workers by providing medical care and support for lost wages. However, businesses with this insurance must go through audits to ensure they’re paying the right premium based on their actual operations. In the context of workers’ compensation, the term may also refer to an evaluation of payroll compensation to ensure employees are correctly classified for premium calculation.

For example, if underreported payroll is discovered, the report will specify the additional premium due and provide a deadline for payment. Reviewing the report carefully is crucial for understanding any changes to your premium and ensuring that all discrepancies have been accurately addressed. Once your insurance audit is complete, they will send a Final Audit Statement outlining any adjustments (additional premiums due) or credits (refunds received). Your agent should have informed you how your workers’ compensation policy operates at its inception – but if not, ask now about what this entails. Running any small business is a challenge, and that challenge is magnified when you have to pay and manage employees. Regardless of your business operations, most states require workers’ compensation insurance, so the burden also falls on you, the small business owner, to make sure your employees are protected.