WORKERS' COMPENSATION AUDITS
WORKERS’ COMPENSATION AUDITS:
PREPARATION IS KEY
I
t’s that dreaded time of year again. A
month or two after the expiration
of your Workers’ Compensation
Insurance policy and you are getting
calls to schedule your audit. The audit
is being requested to determine the amount
of premium you owe for the year. Payrolls
fluctuate, so the amount used when the
policy was first set up is considered your
estimated exposure. The payroll estimate
comes from you prior to the policy’s
inception and is your best projection for the
coming year. The purpose of the audit is
to determine your actual exposure during
the policy period. Since your workers’
compensation premium is determined by
your exposures, the audit determines how
much you will pay.
There are two exposures being looked
at during the audit. Your payroll and the
cost of uninsured contractors. If these
exposures are higher than what you
originally projected, you will receive a final
audit statement. The final audit statement
will indicate the amount of additional
premium owed in this scenario. If you’re
over the projected amount, you will receive
a credit on the final audit statement. The
billing statement usually comes within
three months after the policy expiration
and, once received, generally needs to be
paid within 30 days.
Seems simple enough; however, if you are
not well informed and prepared, it might
not be. So what do you need to do to make
sure you are prepared? First, understand
what the auditor is looking for. Payroll is
primary and payroll also includes payments
made to uninsured contractors. For this
reason, make sure you have current
certificates of insurance on file showing
WC coverage for each subcontractor you
used during the policy period.
To verify the payroll, the auditor will most
likely request one or all of the following
documents:
Payroll Records to include:
•
Payroll Journal and Summary
•
•
•
Federal Tax Reports – 941s that cover
the audit period
State Unemployment Reports and
Individual Earnings Records
All Overtime Payments Shown
Individually
Employee Records
• Include a detailed explanation of the
job duties of each employee
• Include Number of Employees
• Hours, Days, or Weeks Worked
Annually
Cash Disbursements showing:
•
Payments to Subcontractors
• Materials
• Casual Labor
Certificates of Insurance
•
For All Subcontractors
• For All Independent Contractors
• A detailed description of your business
operations
employees can be very costly! If you agree
with the auditor, keep a copy for your
records.
Now that the audit is over, expect to
get a final audit in the mail. Once you
receive this, make sure to review it for
accuracy. The most common mistakes are
misclassification of employees, a change
in the experience modification, charges
for subcontractors, policy rate changes,
incorrect payroll, or instances where payroll
separation are not allowed. If you find any
of these things or do not agree with the
audit, your insurance broker can help you
file a dispute that will put a hold on any
collection procedures for the premium in
dispute. This needs to be put in writing to
your insurance company with a detailed
explanation of what is incorrect and what
the correct premium should be. You will be
asked to pay the undisputed portion of the
premium, but ultimately, if your dispute
is done correctly, it will save you from
overpaying for your insurance. +
To make the auditor’s and your life go
smoothly, have all of the requested
documents ready prior to their arrival. A
quick audit is a good audit, and a happy
auditor usually means a happier insured!
Overtime is discounted, so to make sure
you are not overcharged; itemize all
overtime paid to your employees. Break it
out per employee per job classification.
The auditor will ask questions about
your operations. To make sure the audit
is accurate, the owner of the business
or someone else with a very good
understanding of the operations should
meet with the auditor.
Keep your answers to their questions simple
and do not volunteer information. It’s a
good idea to review their work prior to
them leaving your office. Review how they
classified your employees and make sure
you are in agreement. Misclassification of
BY: MEAGHAN TYNDALE-WILLIAMS, CLCS
VICE PRESIDENT, JGS INSURANCE
Meaghan Tyndale-Williams began her
insurance career with Liberty Mutual in
Commercial Lines as a Direct Sales Property
& Casualty Producer. She won numerous
sales contests and awards while at Liberty
Mutual including 2008 Producer of the Year,
Millionaires Club and Liberty Top Producer
Club. In 2014, after having her first of two
children, she transitioned to JGS Insurance
to be closer to home and began her current
position as Vice President.
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