Tips and suggestions on how to best prepare for your workers compensation audit.
The Workers Compensation Premium Audit Process
The first thing you need to know is why an audit is being requested. Your workers compensation premium is ultimately determined by your exposures. The two basic exposure types for a workers compensation policy are payroll (remuneration) and total cost of uninsured contractors. When your policy is first set up your policy premium is based on an estimated exposure. This estimate should come from you after you've been informed how an auditable policy works, not made up or guessed at by your insurance agent. Your estimate should have been your best projection for the comming policy period.
Shortly after your policy expires, your actual exposure during the policy period will be determined by the audit. After the audit of your workers compensation policy is completed by your insurance carrier they will prepare and send to you a Final Audit Statement. This statement will indicate any additional premium you owe or any credit you will receive due to the payroll adjustment as determined by the auditor. You should receive the audit billing statement usually within three months after the end of your workers compensation policy period.
So what is the auditor really looking for? Obviously the answer is payroll. Payroll, defined as a workers compensation term, which includes payments to others as uninsured contractors.
Records you need to have available
When preparing for your workers compensation audit you need to make available to the auditor only those items they ask for. Don't give them or volunteer more information than they ask for. Remember, the quicker an auditor can finish his job and move onto another audit, the better it is for you and for them. Here's some of the items they may need to do their job;
Payroll Records to include:
Payroll Journal and Summary
Your Check Book. Try not to give them your check book unless it is the only way you keep records.
Federal Tax Reports - 941's that cover the audit period
State Unemployment Reports and Individual Earnings Records
All Overtime Payments Shown Individually
Include a detailed explanation of the job duties of each employee
A detailed description of your business operations
Helpful Hints and Tips
When preparing for your audit keep these helpful hints in mind. They will save you time and cut down on errors the auditor may make.
Separate any overtime paid to your employees. Summarize the overtime by job classification as you list them on your payroll records.
Make sure you have current certificates of insurance
for each of the subcontractors that you used during the policy period. Also make sure the certificates show workers compensation coverage is being provided. You'd be surprised how many small contractors have general liability coverage but no workers compensation coverage. Certificates of insurance must cover the period when the subcontractor worked for you. Be aware, this may require certificates covering different policy terms for the subcontractor.
In some circumstances a single employee's payroll may be divided over different class codes unless the employee works in a clerical or sales position. Proper records must be kept in dollar amounts, not percentages, that reflect work actually performed before a breakdown can be applied. This is called Payroll Separation. Without adequate records, the entire payroll for the employee must be placed in the highest rated classification and payroll separation can not be used.
Simplify the Auditors job. The auditor is on a very strict time schedule. Everytime an appointment is missed or has to be postponed it creates havoc in their life. So if a physical audit is being completed you want to do everything you can to make sure the auditors job goes smoothly. Here's some suggestions:
Be prepared. Do not blow the auditor off and make them have to reschedule. A happy auditor leads to a good audit!
Have all the information the auditor requested organized and ready for use. Complete and accurate records kept well organized will make the audit process easier. The auditor can quickly find what they need and will require less questions and/or clarifications.
Answer basic questions about your business and records. The owner of the business should be available to meet with the auditor to answer questions and review the audit. If the owner is not available it should be someone with complete knowledge of the business. Do not just dump this job off on your bookeeper or a lower level manager. Correct information exchange with the auditor is critical to an accurate audit. Again, just answer what you are asked.
Do not volunteer information. Stick to answering the questions the auditor asks. No more, No less.
Keep it simple. Do not ask the auditor questions. Remember they are not there to help you. They want to get their job done and get out.
A word of caution. Many auditors prefer to just gather data then take it home or to the office and finish it up. This is never a good process. You should always have the chance to review the auditors work before they leave your office so you are aware of how they classed your employees and what the potential impact the audit will have on your business. You will be asked to sign the auditors worksheet before they leave. You should never sign an incomplete worksheet. You should always ask for and keep a copy for your files.
Types of Workers Compensation Audits performed
There are two types of workers compensation audits performed. The physical audit and the voluntary audit. Whether an insurance company performs a physical or voluntary workers compensation audit will depend upon the type and nature of your business operations. The more complicated business operation will usually require a physical audit.
The Physical Workers Compensation Audit
This type of audit is performed at your place of business within 60 days after the expiration of your workers compensation policy. The auditor will notify you by mail and schedule the audit appointment. They don't usually call you to discuss a "best time" to do the audit, they just go ahead and schedule the time and let you know when they will be at your office. The auditor will indicate what type of records they will need to complete their job. If you have any questions or need to modify the time or place of the audit you should contact the auditor as soon as possible. Remember the auditor is on a time schedule. Most Insurance Carriers require them to return the complete audit within a 30 day time period. His clock is running. If the audit is not completed within the time frame given, the auditor must return it to the insurance company marked delinquent. A delinquent audit gives the insurance company additional latitudes
The Voluntary Workers Compensation Audit
Within 30 days of the expiration of your policy you will receive a voluntary audit form from the insurance company in the mail. This form should be completed and returned to the insurance company as soon as possible. The form usually shows the classifications as shown on your policy and asks for your actual payroll exposures for each class. These forms are basic but can be seriously confusing for someone who has not complete one before. If you have any questions about these forms it is in your best interest to contact the insurance company and ask them how to complete the form. Remember, the information you send back is what they will use for your audited payroll. So it is very important that you get it right.
It is very important that the audit be completed and submitted to the insurance company within a timely manner. If a physical audit, do all within reason to comply with requests the auditor may make. If you've been asked to complete a voluntary audit do your best to fully complete the forms and ask for help if you need clarification on any item being requested.
Some final thoughts
The workers compensation audit is a policy provision as outlined within your workers compensaton policy. A contractual obligation. One that you agreed to when you purchased your workers compensation policy. Do you have to cooperate or comply? No... But if you don't comply you give the insurance company the option to apply additional latitudes. If an audit is not completed, or if you are deemed to be uncooperative in completing the audit, an insurance company is allowed to use estimated audit figures and guess what, the insurance company is the one who comes up with the estimate. So here we go....
Do your best to get the audit done on time.
Do your best to work with the auditor and get what they need to do their job.
Do your best to understand the process before it begins.
Remember...if you need it, Workers Compensation Consultants is your resource for help with workers compensation audit errors and workers compensation dispute resolution assistance.