KNOW YOUR RIGHTS
PREPARING FOR AN AUDIT
1 . TAX INFORMATION 2 . PAYMENT & PAYROLL RECORDS 3 . EMPLOYEE INFORMATION
given that the initial premium payment takes place at the beginning of the policy period , the elements of the manual premium equation are only estimates .
After all , throughout the course of the policy , employees ’ job roles or work tasks could change — altering their classification rates . Further , the final payroll amount could end up being different for a number of reasons ( e . g ., promotions or layoffs ). This is why premium audits are necessary .
Premium audits occur at the end of a policy period — usually within 60 days of the policy ’ s expiration . These audits allow insurers to check whether the manual premium calculation was accurate .
If either element of the manual premium equation is different from initial estimates , the insurer will recalculate the policy premium cost . Based on how these elements change , this new calculation may either entail the insurer billing the organization for additional premium expenses , or the insurer refunding the organization for the cost difference between premium totals . A premium refund can take place in the form of a check or — in some cases — a credit applied to the next policy premium .
Premium audits can take place remotely — such as via mail or telephone — or in person . Large organizations with higher premium expenses or more complicated manual premium equation elements ( e . g ., several different employee classification rates ) often require in-person audits , whereas smaller organizations with lower premiums usually engage in remote audits . However , organizations that belong to certain high-risk industries may be required to have in-person audits , regardless of size or premium cost .
Auditors can either work for the insurance company providing your workers ’ compensation coverage or be hired through a third party . In any case , these audits do not happen by surprise — they are planned ahead of time to allow the organization to prepare .
PREPARING FOR AN AUDIT
There are several ways that your organization can prepare for a successful premium audit . First , it ’ s important to have a detailed , organized record of the following documents for your auditor :
• Tax information — This includes W-2 forms , 1099 forms , Form 941 , Form 944 , and your organization ’ s federal tax return .
• Payment and payroll records — This includes your accounting ledger , payroll journal , overtime payroll records , material and labor payments , state unemployment tax reports , and individual earnings records .
• Employee information — This includes a detailed outline of job duties for each employee , their classification rates , and their work schedules .
• Insurance certificates — This includes certificates of insurance for any independent contractors or subcontractors hired . Remember that if the contractors your organization hires don ’ t supply their own workers ’ compensation insurance , you may have to provide coverage for them .
• Additional business information — This includes your general ledger , sales journal , cash receipts , sales tax records , mod factor worksheet , a detailed summary of business operations , and information on each of the organization ’ s owners and partners ( if applicable ).
In addition to supplying these documents in an organized manner , it ’ s critical to make sure all of the information your organization gives the auditor is truthful . Providing false information ( e . g ., incorrect payroll , false job descriptions , phony tax
30