Workers Comp Audit Mistakes and Issues

Workers' Comp audits are an integral part of managing business insurance costs and are one of many areas in which we assist policyholders. These checks determine the premiums payable by the company based on the worker’s salary.

However, mistakes often occur during these checks, leading to high additional insurance premiums. In that case, it’s our job to find the problem and fix it. Here are some of the most common mistakes we fix.

Incorrect Workers Classification

One of the most common mistakes in workers’ comp audits is misclassifying workers. Usually, every worker has at least 3 class codes per state. Senior class, office work, sales. A major class is a classification that best summarizes the type of work a company does.

All workers are classified as senior management unless there are exceptions. The most common exceptions are employees who work only in the office (office) or in the field. A worker may also be placed outside the managerial class if the worker has another type of job and is physically separated, such as at work.

Manufacturers, distributors, and contractors can easily have 4–6 different class codes. For example, many manufacturing companies have different codes for field workers and installation/maintenance workers at customer sites.

Each classification has different proportions, and these differences are often significant. Your average wholesaler has a driver code, warehouse code, distribution code, and office code. Driver code costs 78 times more than office code. Misclassifying just one or two of her workers can lead to huge overpayments.

Owners/officers

Another common cause of worker comp audit errors is when auditors add the entire owner/executive payslip to the manager class. Depending on the state and legal entity (LLC or Corp), you can choose to include or exclude owners/officers from coverage.

If you choose or need to involve the owner/manager, you can limit the wages included in the toilet check. This is another potential source of overcharges on her Worker Comp audit, as the owner or executive may be the highest-paid employee or demand a large payment.

Subcontractors and Vendors

Another mistake that is often corrected during worker comp audits is including payments to subcontractors and suppliers in the payroll. Workers' Compensation insurance compensates uninsured subcontractors as “legal workers”. If the subcontractor does not have its own worker’s compensation insurance, it will be billed at the time of inspection.

When completing the review, you must highlight any payments made to the sub/seller and provide proof of Workers' Computing coverage. Many accountants simply add up all third-party payments and include them on their payslips unless they provide WC proof in advance.

Validators then assume that these payments are treated as uninsured installments, and run tests with large increases. This is another reason why it is always important to obtain proof of insurance from subcontractors and suppliers.

Overtime

Companies that pay for overtime have to add an extra step to the final exam. The purpose of a toilet audit is to accurately quantify the risk of injury at work. Payroll is the best metric for quantifying hours worked, so it’s unfair to charge a high hourly rate to pay overtime.

Overtime must be taken into account in audits, but regular rates will be charged instead of overtime. Basically, if you’re paying for an hour and a half, the total overtime pay he has to divide by 1.5 and add it to his regular salary. If the report sent to the auditor does not include details of overtime pay, you may be paying too much for workers’ compensation insurance.

COVID Pay

It’s a new source of audit confusion, but starting in 2020, most states will require at least another class code, “Coronavirus/ Introduced a temporary audit rule classifying them as “teleworkers”. Employers had to highlight these payments to reviewers during their review so that they could be reclassified. Employers who failed to do so were charged far more than they should have been.

Severance

Finally, severance pay is one of the rare audit issues we encounter. Since many companies pay severance payout of payroll, these payments will appear in the report sent to the auditor. However, severance pay should be excluded as it does not quantify exposure in the workplace as it pays employees who no longer work there.

Severance pay is rarely paid, so it is always up to employers to highlight it on their payslips. Accountants rarely, if ever, ask employers whether their payslips include retirement benefits.