Hearing that your company is to have a workers’ compensation premium audit may strike fear into the hearts of some business owners. But fear not, because a premium audit can be a good thing. Why? A payroll audit helps verify that you pay exactly the workers’ comp premiums you owe, no more and no less. So it pays to prepare the right paperwork.
A workers’ compensation premium audit is the reconciling of a policyholder’s records with the premium rate charged. Workers' comp insurance premiums are based upon payroll. When payroll numbers are estimated at the beginning of the year, any number of errors can occur, causing your company to overpay in some cases. If you do a little preparation ahead of the audit, you can help the auditor verify payroll records so that your workers’ comp premium is calculated accurately and is only what you owe.
So how can your company prepare for a workers’ comp premium audit?
Confirm the auditor appointment. You should hear from the auditor within 30 days after the expiration of your policy to schedule your appointment. Keep a record of the name and number for the auditor who called you, along with the name of the company. Sometimes the auditor will be an insurance carrier employee and sometimes a third-party. If you receive a pre-audit appointment letter, be sure to confirm the appointment date. If you do not confirm, the auditor will not arrive for the audit.
Communicate with your agent. Let your agent know when your audit will be and ask for help preparing the necessary documentation.
Have paperwork prepared in advance. Your auditor should send you a list in advance of all the paperwork you need to prepare. If anything on the list is unclear, contact the auditor for clarification to avoid wasting valuable time chasing down certain records while the auditor is onsite. Records you may need include:
Payroll records, including payroll journal and summary, Federal Form 941 Employer’s Quarterly Tax Return, Federal Unemployment Tax (FUTA) and State Unemployment Tax (SUTA) reports, and all overtime payroll records.
Employee records, including job description for each employee and annual weeks, days and hours worked.
Payment and cash disbursement records, including payments to subcontractors, payments to casual labor and material purchases.
Certificates of Insurance, for all sub-contractors and independent contractors used. If you do not provide these, it could cause you to be charged for coverage for these individuals.
Business operation description, to justify the workers’ comp class codes being used.
Experience Modification Worksheet, published annually by the rating bureau in your state.
An accurate premium audit is in your best interest
Taking time to get your paperwork in order can help the auditor accurately report your payroll figures. When a policyholder does not comply with an audit request, the insurance carrier will complete an estimated audit, which will not be as accurate as a physical audit, and will incur a surcharge as well. Audit managers at major workers’ comp insurers like AmTrust are dedicated to getting as accurate a report of your company’s payroll as possible. And an accurate payroll report means you will pay a premium that accurately reflects your actual payroll numbers.