Tag: Workers’ Compensation Audit

Have a Work Comp Audit soon?

Here are 7 tips for a Smooth Workers Compensation Audit

Find the best advice for a smooth workers compensation audit at myinsurancequestion.com

Each year all businesses must go through a workers compensation audit process. If you are like most small business owners, this is not one of your favorite parts of owning a business.  The process can be long a tidious, but the more prepared you are for this process, the more quick and more smooth the process will be. Consulting with your independent insurance agent can help you prepare for the process and make sure the audit is done well the first time through the process. Here are 7 ways to ensure this process goes as painless as possible.

Communicate with your agent.

Open communication with your insurance agent is essential to a smooth workers compensation audit. This is a reason why it is important to consider an independent insurance agent.  An independent agent is not as closely associated to the insurance carrier.  They can help you prepare for the audit and negotiate on your behalf if anything does not go in your favor. Open communication throughout your relationship with your insurance agent is essential to a satisfied experience during your small businesses workers comp audit.

Have paperwork prepared in advance

Having all necessary paperwork prepared in advance of your audit will make the process move as smooth as it possibly can.  This includes any and all payroll and employee records.  Job descriptions need to be included for each employee and their annual weeks, days and hours worked.  The more detailed the better.

Payment and cash disbursement records,

Throughout the year it is important to keep a record of all payments and cash disbursement.  Not having these available and organized is a good reason to have the auditor dig a little deeper. The more open, honest and organized you are throughout the entire audit process the more smooth the process will be.

Certificates of Insurance 

In order to ensure a smooth workers compensation audit, make sure to keep a detailed record of all needed certificates of insurance for any and all sub-contractors or independent contractors your business used. The primary reason for providing these documents is that if you do not, these contractors will be listed as employees and it can substantially raise what you pay in premium.

Experience Modification Worksheet

The experience modification worksheet is a document that is published annually by the rating bureau in your state.  It covers the loss history for your business during the most recent three-year period, not including the most recent year.  The most recent year is not included due to overlap from some claims not being closed.  If you have had a large claims or a large amount of minor claims during any year it is important to have this worksheet available in order to show the true loss history of your business.

Make yourself available for the exit interview 

After a typically smooth workers compensation audit there is an exit interview at some time.  It usually lasts several hours and is a way for the auditor to ensure they have all the necessary information to accurately audit your business. The more up-front you are with the auditor the more smooth the process will be.

Respond promptly to auditor follow-up questions  

There will more than likely be questions you do not have the answer to, the auditor will have for you during the audit.  The more quick and more thorough you respond to these questions the more the auditor will work with you to promptly and accurately finish the audit process.  The time period after the audit, before the auditor will finish the process, normally takes two to three weeks. There may be additional questions that need clarification.  This may be a frustrating part of the process, but the more accurate the audit is the better it is for your company.  Your agent can help you with any of these questions if you are having a trouble finding the exact information to satisfy the auditor.  It is also important to keep in mind that for security purposes, the auditor does not keep your payroll records.  You very likely will be asked to provide additional information or records that you have already provided.

An Accurate audit is in your best interest, moreso than a fast audit.  This process is frustrating even during a good audit.  It will take time away from your normal work, but it is within your best interest to ensure your audit is fair and accurate. Keep a positive attitude and consult your independent insurance agent in order to ensure your audit process goes as smoothly as possible.

How to properly prepare for a Pay as You Go Workers Compensation Audit

Pay as you Go Workers Compensation Audit

Get the best information about a Pay as You Go Workers Compensation Audit at MyInsuranceQuestion.com

Workers Compensation Insurance policies require an annual payroll audit to be completed. The purpose of the audit is to verify payrolls for the policy period, confirm operations (class codes) and to check for 1099 sub-contract labor. 1099 sub-contract labor can be added to your audit if they are uninsured. In order to exclude a 1099 from your workers compensation audit, they must meet the standards for an independent contractor and must provide a valid workers compensation certificate or state approved exemption. The workers compensation auditor will typically contact you by mail or phone to set-up a time to gather the necessary payroll related documents. There is typically a small period of time to complete the audit otherwise it’s submitted as non-productive. When the audit is non-productive the insurance company produces an “estimated audit” that increases payrolls over the original estimate and a notice of cancellation. The business owner then has to “reopen” the audit and complete within the time frame determined by the cancellation date. If the audit remains non-productive and the policy cancels, the insurance company then reports to the workers compensation bureau. Due to the unproductive audit the workers compensation bureau can prevent coverage from being purchased for that business until the audit is completed.

Typical payroll documents that are provided to the auditor includes the 941’s or Quarterly Tax Reports for the nearest 4 quarters of your policy period. Most policy periods do not work perfectly with the start of a new quarter, therefore, auditors collect the closest quarterly tax reports and commonly use a Payroll Summary for the exact time period to verify payrolls. Most auditors are not familiar with the Pay as you Go model, therefore they audit using the traditional method only, using the Quarterly Tax Reports. The use of the payroll summary for the exact time period is VERY IMPORTANT for the Pay as you Go billing option. Since the business owner is paying premiums based on actual payrolls it’s important to provide the payroll summary for the exact time period. It’s important for the business owner to communicate the need to use the payroll summary for the exact time period at time of audit. After the audit is completed the insurance company will generate a document that shows the payrolls used to complete the audit. If those payroll figures do not match to your payroll summary report either contact your agent for assistance to dispute OR the insurance company. Explain that your billing is Pay as you Go and the auditor’s results do not match your payroll summary.

In addition to payrolls, the auditor is confirming the employees classification is correct. For most businesses all employees belong in 1 of 3 classification codes. Each industry has a workers compensation code that is assigned.   Some employees belong to a classification code that is not included in the main code OR their hazard is minimal, therefore classified separately. If an employee is performing job duties that belong in multiple workers compensation codes, typically those wages are either classified to the highest rated exposure or divided between multiple exposures. In order to separate payrolls, the business owner has to provide the auditor with verification of the hours worked in each code per employee.   The two best methods for accomplishing this is a payroll system that documents the job description and the hours worked for each employee. Otherwise the business owner will need to use a Log Book to document the jobs and hours worked for each employee to properly separate. The clerical workers compensation code is one of the few codes that cannot be separated with another job duty. Clerical is 100% or nothing.