Workers’ Comp Audit: 6 Tips to Avoid a Surprise Bill

6 min readJul 16, 2023

Workers' Compensation is an essential part of any business. The challenge is that the payment structure requires an upfront payment based on projections and the remaining balance has to be paid after confirmation.

It’s never fun to be surprised by a large bill. To avoid being caught off guard when workers' compensation is reviewed and updated, it’s important to have your policy in place at the outset.

In this blog, I will share 6 things you can do to ensure your review and renewal process runs smoothly and without any unexpected charges.

1. Classify your workers correctly

There are 500 to 600 types of work divisions, and if you choose the one that suits you, the cheapest fee may be applied. Workers whose only duties are clerical work are sometimes mistakenly assigned to much more expensive occupations.

For example, a garage accountant/administrative assistant should not be classified as a garage worker. Workers who do clerical work have a different code (8810). When combined with physical labor, insurance premiums rise.

As another example, if you misclassify a worker as an independent contractor, you may not get workers’ compensation insurance. If you are injured at work and do not have workers’ compensation insurance, you are eligible to receive benefits from the state Uninsured Employers Fund (UEF). This can be costly for employers.

In addition to workers’ compensation insurance, there may be other benefits depending on whether someone is properly classified as a worker.

For example, some employers offer worker-only 401(k) and other retirement plans. If someone is misclassified as an independent contractor instead of a worker, that person is not eligible for these benefits.

2. Don’t under-project your payroll

Each policy is reviewed at the end of the year or more frequently. They look at the actual numbers and ask you to pay the difference. It is important to understand which payslips are included in a work injury audit and not to underestimate them. You can count:

Wages
Bonuses
Overtime pay ( in most states )
Holiday, vacation, and sick leave pay
Social Security and Medicare tax contributions
Commissions, profit sharing, or incentive plans
Prevailing wages
Annuity plans

If you don’t extrapolate enough workers’ compensation from your payslip, it means that you paid premiums, but you didn’t pay enough to cover your workers increased salary.

Suppose the original bonus was based on a salary of $250,000. Then you paid $300,000 in wages and salaries. For her additional $50,000 salary, which is not yet covered, she should be insured.

Even if the year has passed, the insurer is still responsible for the injury that occurred and must pay the claim before being reinsured for the following year.

3. Collect a certificate of insurance from your subcontractors

Subcontractors are professionals employed as 1099, not full-time workers of W2. You can work a few hours a week, short-term or regular. They can do jobs your business doesn’t normally do, or simply serve as an extra pair of hands.

Because you hired them, if they are injured on the job and they don’t have their own workers’ compensation insurance, they can sue the company for medical and other costs. can. Insurance companies don’t want to pay medical bills or lost wages for people who didn’t have insurance in the first place and didn’t pay for it.

As such, subcontractors who employ us are expected to have their own worker compensation policies. This requires contracting subcontractors to provide proof of insurance with a properly enforced workers’ compensation policy stating that they have workers’ compensation insurance. means that

If this is not provided, the auditor may require the amount you paid to be included in the insurance policy, as you are basically responsible for any damage caused to these subcontractors.

Therefore, it is wise to collect these proofs of insurance before starting work and keep them in a place where you can share them with the auditor which is a good way to avoid a large check bill.

4. Have a clear process to report claims

Not only should you document a clear process, but you should also ensure that your workers are aware of it. This makes the whole experience easier for everyone involved.

Getting your insurance company involved from the beginning can help reduce your claims costs and future premiums. The process should be outlined in the worker's handbook and discussed annually to ensure everyone understands it.

For example, is there a set of communications that must be adhered to or specific paperwork that must be completed in the event of a violation? to ensure that everyone involved can respond?

Know where records created by your workers are kept and take other necessary steps. Evaluate the policy as needed to determine if it still works well for your team.

5. Report every incident

In general, whenever an incident occurs, you should create an incident report. This step ensures that your organization’s health and safety procedures are effective.

Management said each worker should be trained to complete and submit an incident reporting form, and workplace accidents should be reported immediately.

Each state also has laws about how quickly injuries must be reported to insurance companies. You may be fined for reporting violations after the deadline. In addition to being able to save good documents, reporting has the following advantages:

Serious accidents can be avoided if safety issues are identified and resolved before they become major problems.
It saves time and resources that could have been spent dealing with more serious incidents.
This improves the overall health of all workers across the organization.
This prevents problems due to non-compliance with organizational health and safety requirements.
Reporting events helps companies spot anomalies and track trends and patterns.
This will improve other workplace health and safety practices such as risk assessment and reporting of potential hazards.
This helps develop a strong health and safety culture throughout the organization.
This helps managers identify key workplace issues and create improved work processes and workplace safety protocols.
Even if there are no major injuries, some seemingly insignificant things can lead to expensive problems.

6. Prepare For Your Audit

A work injury check is a mandatory event that requires preparation. Here are some suggestions on how to prepare for an audit.

I know what is being tested. The type of workers’ compensation inspections you can get depends on whether the state requires annual or biennial inspections, and whether the inspections are one-time or ongoing. If your state requires continuous testing, the examiner will probably visit her at least once a year to review records and policies.
Make sure your policies are up to date and compliant with government regulations. Each state has its own list of items to include in its workers’ compensation policy. Make sure your documentation includes all of these points and is written clearly so that anyone reading it can understand what is required and expected.
Where necessary, we update outdated procedures to remain relevant and up-to-date with applicable laws and regulations. Also, make sure that anyone who needs access to these instructions has access. This includes both workers and independent contractors who do occasional field work (such as when driving heavy equipment).
If you hire an insurance company or third party to administer any part of your workers’ compensation program, make sure you have records of all their activities and that those records are current and accurate.

Audits are conducted upon expiration or termination of workers' compensation policies. Keep your payslips and files clean to avoid problems later.

Ensure a Cost-Effective Workers’ Comp Audit

Clear processes for reporting claims, classifying workers appropriately, and understanding which payslips are included in audits to prevent unexpected costs and ensure workers are properly compensated.

You can also reduce costs by applying the best rates for workers' compensation. Want to know how much your workers’ compensation insurance will cost? Get an instant quote online and get answers in less than 10 minutes.