Workers Comp Audit Resource Guide

Workers Comp Audits

All workers comp policies require a premium audit at the end of each policy period.  The audit is done because your premium is actually a payroll function, meaning the higher the payroll, the more you pay in premium.  The audit will determine the difference between your estimated payroll and actual payroll, and it will adjust the premium accordingly.

We know that workers’ compensation audits are a pain for many people as they can be time-consuming, cumbersome, and downright annoying.

Unfortunately, premium audits happen every year, so we put together a guide to prepare for your next one.

When and How are Audits Typically Done?

The best way to begin preparing for a workers’ compensation audit is to understand how and when audits are typically performed.

When are premium audits performed? 

Premium audits are performed shortly after your policy expires.  In fact, most are usually done just a few weeks later.

How are they typically done? 

Depending upon the amount of payroll you have, workers comp audits are typically done 1 of 2.  The first (and easiest) way is by fax or mail, where the insurance company will send you a checklist with the necessary items.    The second and most common way is for an insurance company representative to come out and gather the information.

What Records Do You Need for an Audit?

The more documentation you have prepared before the audit, the quicker it will go.

Every insurance company is a little bit different in the information they require to perform an audit, but here is a list of the most common items you will need to provide:

1. Payroll Records – payroll summaries by employees, federal tax reports, and state unemployment reports
2. Financials – copies of the income statement and balance sheet
3. Certificates of Insurance – if you used any subcontractors during the year, request they provide you with proof of workers’ compensation insurance.

How Can You Save Money?

If you are properly prepared with your documentation beforehand, there are several ways for you to save money on your premiums.   Law firms that aren’t prepared end up paying more premiums than they need to.

Here are some ways to save money on your audit:

1. Class Code/Payroll Separation – For law firms with more than one class code of employees, it’s essential that you place each employee within their respective class code before the audit is performed.  Not doing so may result in some of your employees being incorrectly classified to your highest-rated class code.
2. Employee Tips – In some states, you can actually remove declared tips from the gross payroll amount, but only if it is properly identified and separated on your payroll reports.
3. Overtime Pay – In most states, you can actually deduct the additional payments received from overtime work.  For example, if an employee’s regular hourly rate is $8.00, and his overtime rate is $12.00, you can deduct the additional $4.00 an hour the employee received working overtime.   You must have this additional pay identified and separated on your payroll report by the employee.
4. Certificates of Insurance – If you had subcontractors perform any work for your company during the policy period, you need to provide Proof of Insurance for every subcontractor who performed work for you.