5 Steps to Get Through Your Workers Comp Audit

5 min readJul 16, 2023

Unless you’re new to running a business, you’re probably familiar with workers’ compensation 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 several 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 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 accuracy. 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 worker 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 worker's gross wages for the duration of the contract are charged. Each worker 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 worker 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 based on something called the Experience Modification Factor. Your experience mod.

Calculations are made 6 months before 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 worker comp 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. The documents you will usually need to submit are:

Last four quarterly 941s
Any 1099s issued
Payroll reports or spreadsheets showing individual worker names, job duties, states worked, and gross payroll for the policy period
Overtime pay, if any
List of all owners/officers' names, titles, job duties, gross payroll, ownership percentage, and number of working weeks
List of subcontractor names, job duties, and payroll during the policy period
Certificates of Insurance (COI) for all subcontracted labor — Note: If the owner is the person doing the work, make sure that the COI states the owner has coverage for himself/herself or that the COI indicates that officers are not excluded

Step 3: Avoid Common Mistakes

Unfortunately, mistakes happen. Even if you have all your paperwork ready before the worker comp audit, the worker comp audit can be miscalculated.

Human error can cause auditors to assign the wrong code to a worker, forget to work overtime or charge a subcontractor who should not have been charged. To avoid this, make sure you have arranged the following prior to the audit:

Double-check all your COIs for subcontractors to make sure that none are without coverage, or are for dates that don’t include your policy term. If that is the case, request updated COIs immediately.
Make sure your payroll records do NOT include any “excluded remuneration” — overtime, rewards, tips, severance, officer exemptions, payments for active military duty, etc.

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

Step 4: Schedule/complete your worker comp audit appointment

We hope that the worker comp audit will be administered electronically or by phone to expedite the process. However, if you need to schedule an in-person worker comp 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 a worker, not an independent accountant or accountant.
Treat the auditor 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 auditor.
Don’t give out free information. Please answer the question specifically without elaborating.
Do not allow investigators to roam freely or unsupervised in your office or facility.
Try to schedule the worker comp audit in the afternoon, preferably on Friday.

We know some of these suggestions may seem strange. Because if the worker comp audit is just to make sure you’re paying the proper workers’ compensation, why should an auditor opinion on appointments affect your audit? Huh? To be honest, it shouldn’t be, but… it could be. Creating an easy, stress-free environment for the auditor 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 auditor was administered correctly is to obtain a copy of the auditor’s worksheet. Before the auditor leaves, you should ask the auditor for his 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 auditor’s worksheet to make sure everything is correct. If you have any questions, please contact your insurance agent.

Get through your worker comp audit with ease:

We know that 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 worker comp audits. Also, there are other things that can help.