What is a workers’ compensation audit, and what do I need to know?

As a business owner, your insurance company may ask you to verify your company’s payroll records. This is known as a workers’ compensation premium survey. If you have been contacted by an insurance company about a workers’ compensation investigation, or expect to be contacted by an insurance company in the future, the following steps will help you through the process from start to finish.

What is a workers’ compensation audit?

A workers’ compensation audit is an end-of-year process that verifies that a company is paying out the correct amount of workers’ compensation insurance. As part of the audit, the commercial insurance company will review payslips and other documents and, if necessary, adjust the previous year’s employee compensation pricing.

Why will my business undergo a workers’ comp audit?

Workers Compensation insurance premiums are determined by many factors, but the most important factor is the sum of wages and salaries. When you apply for workers’ compensation insurance, tell your insurer how much you plan to pay your employees next year and what kind of jobs you expect them to have.

The problem is: Those estimates aren’t always accurate. Let’s look at an example:

Let’s say you own a small breakfast restaurant. Suppose an employee compensation contract is about to expire. When he first filled out the insurance form, he estimated that he would pay $200,000 in annual wages and salaries. And I paid workers’ compensation insurance premiums based on that estimated figure.

What actually happened to you is that you didn’t hire as many pancake makers as you thought you would (fuck it) a little later this year. An audit by the insurance company shows that he actually paid only $160,000 during the period of insurance. The insurance company will then write you a check showing that you are overpaying for your workers’ compensation insurance.

Of course, testing can also go the other way. If your pancake sales are skyrocketing and you have to hire twice as many staff as you expected, you’ll have to pay a premium at the end of your workers’ compensation contract.

What do I need to know about the workers’ comp audit process?

A few things.

1) Audits are mandated by law.

You cannot be tested due to suspicion of fraud. You are being audited to ensure that the payslips and industry codes at the top of your policy match the numbers at the bottom of your policy and that the subcontractors you use are unique Because each company is audited to see if they have insurance.

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

There are three main types of workers’ compensation audits that small businesses may face. Below we explain what they are and what you need to do to comply with them.

• Email Audit: A postal check, also known as a voluntary check, mails you a worker’s compensation check form from your insurance company. All you have to do is fill out the Workers Compensation Insurance Worksheet and return it along with any other documentation requested by your insurance company. For small businesses, this is the most likely scenario for auditing employee compensation, as online insurers are primarily interested in obtaining accurate salary information for the past year.
• Phone audit: For this type of worker’s compensation investigation, you will be given several forms to fill out and turn in your payslips. The difference, however, is that the insurance company representative will call you by phone to discuss the paperwork. Phone audits are typically done for medium-sized businesses.
• Physical audit: A physical workers compensation audit is usually only done in very large companies or when there is suspicion that the company is engaged in serious misconduct. During the physical examination, the insurance company will send a representative to your place of employment to conduct several interviews, review payslips, tour the premises, and possibly request additional documentation. For physical work injury assessments, use the services of a work injury assessment attorney to ensure legal compliance with all aspects of the assessment without exposing your business to potential litigation. is recommended.

3) If you choose a pay-as-you-go option for your workers’ compensation insurance, your audit will be even more seamless.

With pay-as-you-go pricing, monthly employee compensation automatically increases or decreases as salaries fluctuate.

Salaries are the most important factor in determining how much workers’ compensation insurance pays, so just looking at your wages can give you a rough idea of ​​how much you’ll need to pay, which may come as a surprise in an audit. You can avoid most of the and check your payroll costs.

Either way, you’ll still be audited (which, unfortunately, is required by law), but the process should be easier if you’ve signed up for a pay-as-you-go plan.

Frequently asked questions: Workers’ compensation audit

At first glance, asking an insurance company for a workers’ compensation audit can be intimidating and intimidating. But it doesn’t have to be. Below are answers to some of the most common questions to help you prepare for an employee compensation audit.

How do I prepare for a workers’ comp audit?

Here are some tips to prepare for your first worker’s comp premium audit:

• Assist auditors in helping them: Be kind and courteous when contacting insurance examiners and answering questions or providing information. Remember to be open, concise, and knowledgeable about your business. Review all workers compensation review worksheets you have prepared and do not approve incomplete worksheets. This saves reviewers time by not having to fill in the blanks again and again. We also recommend that you make a copy of the Final Employee Compensation Review Her worksheet for your own records.
• Separate pay slips by class code: Most employees can be categorized under different classification codes depending on their job function, job classification, or job description within the company. If you have a large number of employees, it is even more important to document your pay grade divisions to more accurately reflect the exact distribution of salaries to the jobs you hire. Some business owners create payroll journals to organize pay grade codes when undergoing an audit.
• Check your subcontractors: As part of a worker’s compensation review, subcontractors and independent contractors are also reviewed by insurance companies to see if they had their own insurance policies while working for the company. We recommend that you obtain a Certificate of Insurance (COI) from all subcontractors proving that they had their own workers’ compensation insurance policy while working for the company.

Don’t be intimidated by your first employee compensation audit. Maintaining detailed, honest company records and keeping them in order makes it easier to audit employee compensation.

What penalties can I face after a workers’ comp audit?

Ignoring a workers’ compensation check is a major problem because the policy clause states that a workers’ compensation check will be performed and is a breach of the policy. Ignoring employee compensation checks can result in:

• Additional fee: The main penalty you may face for ignoring a worker’s injury inspection is “worker’s failure to respond to a survey”, commonly referred to as a worker’s injury inspection failure. Fees for non-compliance are typically between 25% and 50% of the original premium.
• Additional documents: The extra paperwork is a hassle, but it’s fun to ignore workers’ compensation audits.
• Penalties for underpayment: If your total estimated salary by the end of the year is more than that, you will be obligated to pay the insurance company. Ignoring checks can delay the insurer’s receipt of owed fees and ultimately cost more time, money, and more paperwork.

No one likes to be audited, but to avoid additional costs and paperwork, workers’ compensation insurance premium audits should be responded to quickly.

Can I dispute the outcome of my workers’ comp audit?

Depending on whether you owe money to or from your insurance company, you may be eligible for a refund when your workers’ compensation premiums are reviewed. In either case, you can object to the workers’ compensation review for the last three years or the last three contract terms.

If you wish to challenge an audit of an employee compensation award, it may be helpful to hire an audit professional to guide you through the formal audit dispute process.

Having your exam reviewed by a professional will help you identify potential mistakes with the insurance company that could end up working in your favor, ultimately resulting in a higher reimbursement or higher debt.

Your debt may be reduced or you may be out of debt altogether. The work of public accounting professionals is especially beneficial during the tax season because workers’ compensation payments directly affect federal tax returns and other tax reports.

You can also contact an insurance agent who offers workers’ compensation insurance to discuss dispute resolution best practices.

Secure workers’ compensation insurance for your business with Huckleberry

Running a small business is hard, but it’s even harder when you have to pay and manage your employees. Regardless of your business, most states require workers’ compensation insurance, so as a small business owner, you too have a responsibility to ensure that your employees are protected. This is where J&L Risk Management can help.