Getting through a Workers Comp Audit
A Workers Compensation Audit can be a frustrating thing to go through as a business owner. The frustration starts the moment you get the letter from your insurance company a few
weeks after your policy renews, or if you cancel your policy notifying you of an audit. Then starts the tasks of gathering all the payroll information, filling out the forms (and making sure they are correct) and sending them off. Then, you get the letter from the company letting you know that you’ll owe an extra thousand or two in premium. You cant get your agent on the phone, and all hope seems lost.
That is w
hy here at IPG Insurance, we work to make sure to keep our clients informed on what Workers Comp Audits. We have created a free guide to Workers Comp audits available here that will inform you what your responsibility is as a business owner, what to expect from an audit, and gives your a Audit Checklist to help make sure everything runs smoothly.
So What is a Workers Compensation Audit?
A workers comp audit is an annual review of records at the request of an insurance company. It may be done by phone, m
ail, or in person depending on the assigned Auditor. Audits determine if the payroll and class codes quoted at inception accurately reflect the actual payroll and scope of work performed during the policy period. Audits also ensure that sub-contractors had their own coverage in place. If not, you may be charged for payments to uninsured sub-contractors on your policy on your audit.
What are the different types of audits?
There are two types of workers compensation audits, the most common for small businesses is a voluntary audit. These audits are standard and require the business owner to submit their payroll numbers per class code for the expiring term.
What is the process?
After you send your numbers back in to your Insurance Company, a few weeks later the Company will send you the Final Audit Notice. This shows the final calculations and lets you know the results of the audit. In some cases, Business owners may get a refund based on the audit results. This commonly happens when the estimated payroll is lower than the actual payroll. In other cases an owner may be charged for a class code with payroll not disclosed during the policy term, or additional payroll in a disclosed class code.
IF I’m charged, can I dispute the Audit?
As a business owner, you absolutely have the right to dispute an audit. Audits can be disputed for up to the past 3 years, or policy periods. The most common mistakes we have found on audits deal with the owners payroll being included when it should not have been. If you feel that your audit is incorrect its always best to give your current agent a call.
This all sounds like a lot. Can I just ignore it?
An audit is required under the terms of a policy. Therefore, it’s a violation of the agreement to avoid an audit. 1/10 would not recommend doing this as a business owner. The policy will generally outline the penalties associated with a businesses failure to respond to an audit request. In most cases your insurance company will send you a first request for an audit, and if you don’t respond they will send a second. If no response has been made, the company will send you a notice of non-compliance. This is where the company estimates your payrolls, often charging an additional premium of 25% – 50% of the original policy premium. If you still do not respond the company will send the bill to a collections agency.
Ok, but are there ways to avoid an audit?
Unfortunately there is no avoiding an audit. There are ways to lessen the stress of an audit. These include:
Make sure you are periodically reviewing payroll and submit any changes to your agent.
Classify your employees with the correct class code and update through term if something changes.
Always ask for current COIs (Certificates of Insurance) from subcontractors who do work for your business. I would do this probably 2-3 times per year depending on how much work the subcontractor is doing for your business.
Ask your agent about Payroll Billing or monthly-self reporting premium options. Though they will not keep you out of an audit they can lessen the impact that audits can have on your businesses bottom line.