Demystifying the Workers’ Comp Audit: What You Need to Know
Ever wonder where your workers’ compensation premium goes? Well, a big part of it relies on a process called a workers’ compensation audit. This audit ensures you’re paying the right amount for your coverage, and it benefits both you and your insurer.
What is a Workers’ Comp Audit?
Simply put, a workers’ compensation audit verifies your payroll and other records related to your business. When you sign up for a workers’ comp policy, you estimate your payroll for the year. This estimate is a key factor in determining your premium cost. The audit compares this estimate to your actual payroll to ensure you’re paying for the appropriate level of coverage.
Why are Audits Conducted?
There are two main reasons for workers’ comp audits:
- Accuracy: Audits ensure you pay the correct premium based on your actual payroll. This helps maintain fairness for both you and the insurer.
- Risk Assessment: The audit also assesses the level of risk associated with your business operations. This helps determine if your current job classifications are accurate and if your premium reflects the actual risk of work-related injuries.
What to Expect During an Audit
There are two main types of audits:
- Desk Audit: This is the most common type. The insurer will request your payroll records, employee information, and any subcontractor payments. You can usually submit these electronically.
- Field Audit: In less frequent cases, your insurer might send a representative to your workplace to review your records and observe your operations firsthand. This typically happens for larger companies or if discrepancies are found during a desk audit.
What Happens After the Audit?
Once the audit is complete, your insurer will provide a summary of the findings. Here are some possible outcomes:
- No Change: If your payroll and risk profile match your initial estimates, there will likely be no change to your premium.
- Refund: If your actual payroll was lower than estimated, you might be entitled to a refund for the overpaid premium.
- Additional Payment: If your payroll or risk exposure was higher than estimated, you might need to pay an additional premium.
Tips for a Smooth Audit
- Maintain Accurate Records: Keep meticulous payroll records throughout the policy period. This includes wages, salaries, bonuses, and any other forms of compensation paid to employees.
- Classify Employees Correctly: Ensure your employees are classified according to their job duties. This helps determine the appropriate premium rate.
- Keep Track of Subcontractors: Maintain records of any subcontractors you hire and verify they have their own workers’ compensation insurance.
- Cooperate with the Auditor: Provide all requested information promptly and accurately to facilitate a smooth audit process.
By understanding workers’ compensation audits and being prepared, you can ensure a hassle-free experience and maintain accurate coverage for your business.