5 Ways Your Workers’ Comp Audit Can Benefit Your Business
If you’re like most employers, hearing the word “audit” is like watching red and blue lights reflect in your rearview mirror when you know you’re speeding.
You can be 100% sure your business policies are correct, but the moment you get an audit notice, roll down your driver’s window and guilt-trip your driver’s license and registration and speeding ticket. like you’re suggesting. What would you say if I told you that not all audits represent the worst-case scenario?
In fact, an annual workers’ compensation audit can actually be beneficial to your business. The team at Combined understands the stigma associated with the audit process. Our commercial insurance experts have helped many employers overcome their fear of doing so and turn workplace injury assessments into a corporate resource.
In this article, learn not only why an annual employee compensation review is important, but how it can work to your advantage. In this short read, learn how occupational injury audits can benefit your business.
What is workers’ comp insurance?
Workers Compensation insurance provides benefits to employees who suffer a work-related injury or illness. It protects employees in the event of a work-related accident and provides financial assistance and medical expense coverage.
It usually covers the following:
- Necessary medical treatment
- Ongoing care or rehabilitation
- Lost wages
- Funeral expenses
- Disability benefits
Employment accident insurance protects employers from high legal liability after an accident or injury at work.
What is a workers’ comp audit?
When enrolling in Workers’ Accident Compensation Insurance, the annual premium is an approximate amount for the policy year.
The price of your coverage premium is determined by these 3 factors:
- Employee Classification Rate — A rate typically set by the National Compensation and Insurance Council (NCCI) or a state-regulated independent rating agency that assesses the level of risk associated with an employee’s job. The higher the risk, the higher the rating. For example, high-flying Cirque du Soleil acrobats cost more than the prices assigned to neighborhood librarians. why? Apart from the angrily refusal of science funders to pay exorbitant fees, aviation performers are at greater risk in their work.
- Gross Payroll — The total amount of compensation an employee receives for their work. To determine an employee’s compensation premium, pay an employee grade rate for each $100 of her gross salary. Example: If your only employee earns an annual salary of $50,000 at an employee classification rate of $1, your total salary will be an annual employee compensation fee of $500.
- Experience Modification Factor — A numerical measure of past employee compensation claims, used to predict expected insurance costs. The Experience Modification Factor measures three years of claims history compared to expected claims costs for similar companies.
If past qualifications are less than the expected cost, the experience modifier is less than 1. However, if your previous bill exceeds your expected cost, you will be given an experience modification factor greater than 1. When estimating annual premiums, an experience change factor of less than 1 reduces costs, and a higher value increases costs.
What to look out for when predicting premiums for a year? What have you noticed about some of these factors? These may change over the course of the policy year. If your business is doing well and you decide to hire more employees, your salary will increase.
Alternatively, employee promotion rates may change if, instead of hiring more employees, you decide to divide your employees into different roles to increase productivity. If layoffs are impacting your employees, you’ll see the big picture.
At the end of the year, estimated premium costs should be adjusted to reflect these changes. And how can you compare estimated premiums to actual end-of-year costs? With accident tests.
A workers comp audit is an examination of payslips and employee classification records for the policy year. It is used to determine if the estimated premium for a policy year matches the actual cost of insurance at the end of the year.
Why should you do an annual workers comp audit?
The short answer to this question is “because we have to”. By law, workers’ compensation contracts require workers comp audits to be conducted at the end of the year. But if requirements alone aren’t enough, let’s explore the many ways auditing employee compensation can benefit your organization.
5 ways your annual workers’ comp audit can benefit your business
Here are five reasons and benefits of conducting an annual workers comp audit.
1. Your workers comp audit prevents you from paying penalties
As a legal requirement, auditing employee compensation has legal implications. Failure to act on the workers comp audit notice can result in significant penalties.
Depending on the location of your business, penalties for failing to complete an annual workers’ injury diagnosis will be added to your original premium from 25% to 50%.
2. Your workers comp audit ensures your insurance premium is correct for your coverage
By auditing employee compensation, you can ensure that you get the coverage you need at the right price. The purpose of reviewing employee compensation each year is to determine if estimated expenses are over, under, or within budget.
If you overpaid at the beginning of the year, you will be refunded the difference after the annual audit.
In this case, the exam is designed to save money. Without this insurance, you may not have even realized that you paid too much.
If the estimated premium is lower than the actual cost of coverage, you will be charged the difference after the final exam.
Paying more premiums at the end of the year may not seem like a benefit, but paying the difference each year ensures that your company complies and remains compliant with workers’ compensation regulations. Also note that insurers may conduct audits up to three years after the policy year.
So let’s say you haven’t been through the workers comp audit process for three years and need to be audited for the entirety of that period. If you make too few premium payments for all three years, the total claims you receive can become unmanageable.
If the payment amount is insufficient due to a cheap financial plan, etc., it is possible to prevent the accumulation of expensive insurance premium collection fees by conducting an industrial accident review every year.
3. Your workers’ comp audit eases the coverage renewal process
Employees are required to have workers’ compensation insurance, with some exceptions. If the year-end review process is not passed, the insurer may decide to withdraw the insurance offer. This means that you will have to find a new provider.
And with a history of employee compensation audit violations, finding a new trucking company can become increasingly difficult. Additionally, any workers’ compensation offer you receive may be more expensive due to your track record of non-compliance. Conducting an employee compensation audit every year makes insurance renewal easier and cheaper.
4. Your workers’ comp audit benchmarks insurance premium costs
After an annual audit, you will gain valuable insight into your premium costs. This means you always have the information you need to compare your premiums with other comparable companies.
5. Your workers’ comp audit incentivizes organized record-keeping
Employee compensation reviews include employee classification and total payroll cost evaluation.
And how would the auditor verify this information? By reviewing job descriptions and payslips.
To accomplish this, these records must be updated, organized, and ready for evaluation.
Employee compensation checks are therefore an incentive for proper and accurate documentation. This protects you from other irrelevant and potentially damaging compliance complications.
Next steps to a worry-free workers’ comp audit
If you’ve been here, you know that just imagining exams can be terrifying.
After reading this article, I learned that I don’t have to fear the annual review of employee compensation. In fact, completing it is beneficial for you and your business.
Our team at Combined has spent years helping companies both large and small pass this taboo test and turn it into a clever tool. Our commercial insurance experts can help you transform your workers’ compensation insurance review into a game-changing resource.
Forget your employee compensation exam phobia with the police siren in your rearview mirror.
