Worried about the Workers Compensation annual audit? Don’t be! How to be prepared and impress the auditor!
After the expiration of the policy period, a worker’s compensation audit will be performed either by phone, mail, or in person. This audit is performed by the insurance company or a 3rd party to verify that the payroll class codes that were quoted are still accurate after the policy period. It, also, compares the estimated payroll during the audit period to your actual payroll paid during that period.
Based on the difference, you will receive a bill or a credit to your account.
Below is a checklist of documents that the auditor may ask for:
- Payroll Summary
- State Unemployment Tax Reports or individual earnings records – RT-6 reports.
- Federal Tax Reports (941’s that cover the policy period)
- Overtime payroll records
- Explanation of each employee’s duties
- Number of hours, days, and weeks that are worked
RECORDS OF PAYMENTS AND CASH DISBURSEMENTS
- Payments to sub-contractors
- Material purchases
- Casual labor payments
- 1099 Forms
- General Ledger
- Profit and Loss Statement
- Detailed Bank Statements including copies of cancelled checks
CERTIFICATES OF INSURANCE
- For all sub-contractors used during the policy period
- For any Independent contractors used
DETAILED DESCRIPTION OF YOUR BUSINESS OPERATION
- Determines the correct WC (workers’ compensation) classification codes for the period of coverage being audited
OWNERS, OFFICERS AND PARTNERS INFORMATION – INCLUDING PAYROLL INFORMATION
- Name of Owner, Officer and/or Partner
- Corporate Title
- The percentage of stock they own
- How long they have been employed
- Total earnings
- EXEMPTION INFORMATION IF APPLICABLE
TIPS to control your Workers Comp Premium cost
Be specific with the auditor about officer and employee duties. The Workers compensation policy is based on payroll and the type of work that the employee or officer performs. If an officer or an employee is only performing clerical work, the rate for that type of work is much lower than most other types of work. Be accurate about the duties of each employee.
Also, when an employee is performing more than one duty, usually their payroll is calculated at the highest-rated class code. If possible, separate the payroll for each job duty, so you do not end up paying more.
Remember to keep up with your exemptions, set a reminder for a month before the exemptions expire. If your exemption does expire, you will have to pay to include the officer. If it expires mid-term, there will be a pro-rated premium associated with the officer’s inclusion.
Next, when hiring subcontractors, be sure to ask for certificates of insurance before the job starts, and make sure it includes workers compensation coverage. If you can prove the contractor that you hired has workers compensation insurance, and you have proof of coverage for the policy term, their payroll can be excluded. However, if they do the job without providing it, you are less likely to get them to provide it for your audit. They are on to the next job.
Lastly, seek the help of a professional. If you are using a payroll company or accountant, ask them for help with your audit. They should be able to quickly access most of the reports and payroll information that your auditor is requesting.