5 Steps to Get Through Your Workers Comp Audit

6 min readJul 9, 2023

Unless you’re new to running a business, you’re probably familiar with workers’ comp audits. But if you’re like most people, you’re probably still confused. Annual audits are often very complex, stressful, and time-consuming for many companies.

However, to avoid costly overclaims, it is important to understand how premiums are determined, what is required for verification, and how to avoid mistakes.

Luckily, we’ve seen that happen a few times (nearly thousands) here at Berry Insurance. We are here to make the Workers Comp audit easy by explaining what the Workers' Comp audit is and how to prepare to ensure you get a perfect audit.

What is a workers comp audit?

At the inception of the policy, a workers’ compensation premium is quoted based on the expected risk over the period of the policy. When your policy expires, you will be asked to fill in the actual amount insured for the duration of the policy. This is your Workers Comp Audit.

It’s designed to keep you from overpaying (or underpaying) for insurance. In other words, you are guaranteed to pay only for the engagements you actually make. That’s good! We love precision. While this process is convenient, it doesn’t mean it’s not confusing. There are many ingredients to prepare and many mistakes to avoid. Now let’s move on to the five steps you need to take in preparation for a Workers Comp audit.

Step 1: Understand How Your Premium is Determined

Before reviewing, we need to see what the premium is and how it was determined. There are several factors that determine cost.

Gross payroll

First of all, the employee’s gross wages for the duration of the contract are charged. Each employee is assigned a four-digit code that represents her primary job function. For example, code 8810 is used for office work, and code 5190 is used for electrical work. Each code is associated with a set by the state and can be adjusted annually.

Location

Your insurance is also evaluated based on the state in which you work or reside. You should always keep detailed payroll statements of the work done by each employee in each state.

The salaries of LLC owners, officers, partners, or members are limited to wage rates set by the state, which are also typically adjusted annually. Also, depending on how the business structure is set up, owners or officers are either automatically subject to the policy or must be elected in writing to be subject.

Previous claims experience

Your insurance may also provide a fee (or credit) for past claims. This fee or credit is determined based on the so-called Experience Modification Factor. Your experience mod. Calculations are made 6 months prior to the start of the contract and unfortunately can be calculated incorrectly. Insurance agents should monitor this calculation and verify its accuracy before issuing an insurance policy.

Fees and assessments

Finally, as part of our policy, we still incur some fees and amounts. These are issues such as terrorism, cost constants, and assessments by the Ministry of Industrial Disasters. We have no control over these charges. Note, however, that although these are included in the total cost, they are not significantly changed by the audit results. All of these factors are calculated at the start of a workers’ compensation plan to determine your premium.

Step 2: Prepare Your Documents

Once the policy is in effect, you should start preparing the paperwork needed to complete your work injury investigation. Documents that are usually required to be submitted are:

Last 4 Quarters 941
All 1099 issued
A payroll report or spreadsheet with individual employee names, work items, work status, and total pay for the period of insurance
Overtime (if any)
List of all owners/legal names, titles, duties, gross salary, ownership percentages, and working weeks
Subcontractor name, work contents, and pay slip list during the insurance period
Certificate of Insurance (COI) for all subcontracted labor — Note:
If the owner is the principal doing the work, COI states that the owner is insured himself or that stated on the COI that no officers are excluded. Please Confirm.

Step 3: Avoid Common Mistakes

Unfortunately, mistakes happen. Even if you have all your paperwork ready before the Workers Comp audit, the audit can be miscalculated. Human error can result in auditors assigning the wrong code to an employee, forgetting to work overtime, or charging subcontractors who should not have been charged. To avoid this, make sure you have arranged the following prior to the audit:

Double-check the COI of all subcontractors to make sure none are uninsured or apply to dates that do not include an insurance period. In this case, please request her updated COI immediately.
Make sure your payroll records do not include “excluded compensation” such as overtime, compensation, tips, severance pay, exemptions for officers, or payments for active military service.

With these considerations, your audit should (in most cases) be calculated correctly.

Step 4: Schedule/complete your audit appointment

We hope that the Workers Comp Audit will be administered electronically or by phone to expedite the process. However, if you need to schedule an in-person audit, there are a few extra steps you should take to make the process go more smoothly.

If you cannot meet the proctor, arrange for someone knowledgeable and friendly to work with the proctor.
This should be an employee, not an independent accountant or accountant.
Treat the examiner as a welcome guest. Install in a clean and tidy workspace.
Please do not consider this visit to be an inconvenience. Submit a printed copy of all documents to the examiner.
Don’t give out free information. Please answer the question specifically without elaborating.
Do not allow investigators to roam freely or unattended in your office or facility.
Try to schedule the audit in the afternoon, preferably on Friday.

We know some of these suggestions may seem strange. Because if the Workers Comp audit is just to make sure you’re paying the proper workers’ compensation, why should an examiner’s opinion on appointments affect your Workers Comp Audit? Huh? To be honest, it shouldn’t be, but… it could be. Creating an easy, stress-free environment for the examiner will help the process run more smoothly. And just be polite!

Step 5: Obtain the Auditor Worksheets

Even if all of the above steps are successful, mistakes can still be made. why? Well, partly because of human error, but partly because many accountants work for third parties, not insurance companies. In most cases, they are unfamiliar with classification rules and country-specific coverage, which can lead to costly mistakes.

The only way to be sure that the audit was administered correctly is to obtain a copy of the examiner’s worksheet. Before the auditor leaves, you should ask the auditor for a business card and for a copy of the worksheet. This step is important because the worksheet cannot be shared with insurance agents. Therefore, it may not appear unless requested.

Check your examiner’s worksheet to make sure everything is correct. If you have any questions, please contact your insurance agent.

Get through your audit with ease:

We know that Workers Comp Audit time can be a stressful time of the year. But if you understand your premiums, organize the information you need, anticipate common mistakes, and set deadlines properly, the process is actually pretty easy.

Of course, if you have questions or concerns specific to your business, an agent is available to help. Feel free to contact us so we can help you feel more confident in your future audits. Also, there are other things that can help. Download the following workbook for resources to help you prepare for a smooth workers’ compensation audit.