This past week I went to a training seminar on workers’ compensation insurance. I showed up to this event expecting to learn about claims, class codes, and all the new products coming out. When I got to the seminar I first sat down at the table I was assigned to. While I introduced myself to all the other insurance agents, I asked them, “What do you expect to learn this week?” To my surprise, everyone wanted to learn about audits. Everyone wanted to learn about things like how an audit works, who does the audit and why do we need to do them? I really was shocked that so many agents didn’t know much about an audit.
What is an audit?:
Workers’ compensation policies are issued with estimated payroll figures for the policy period. An audit is completed at the end of the policy period in order to determine the final policy premium. It can be completed either by phone, mail, or physical visit.
How to prepare for an Audit:
Assemble all financial documents that you have accumulated throughout the year. You should really start at the beginning of each policy year. Things that will be helpful/needed: payroll books, 941s, SUTAs, 1099s, checkbook (which is best if you have a separate checkbook for personal and business), general ledger, or tax records and lastly all Certificates of Insurance. It is very important to know that all grossed wages are used, for example wages for all payroll, commissions, bonuses and lodging allowance.
Who does the audit?:
Typically it is the actual carrier that will do the audit. Your agent will be able to assist you, but it will be the carrier that will proceed with the actual audit. There are times where the carrier can use a third party as the auditors.
When do audits take place?:
Audits typically take place at the end of the policy year. Your agent can request a quarterly, monthly or semi-annual audit for your company. The reason they might suggest that you do one mid-term, is to check on your payroll. It is always best to get the most accurate payroll, but sometimes we might have to actually estimate what an employee will make in a year. When we estimate the payroll, it is always nice to check to see if you are close or going over the estimated payroll. It is a lot easier to adjust payroll during the policy term, than to do it after. It is also a lot nicer to not have to pay any additional premium at the end of the term.
I understand that audits can be stressful and just a pain in the butt, but they are necessary. But if you are prepared for the audit, then you will be okay. The auditor isn’t after you or after your business. They just want to make sure you are paying the correct premium. They also want to make sure that you are classified correctly. So don’t think that audits have to be the end of the world, just breathe and relax. With this advise you will be all set for the audit. You can always call your insurance agent and they will gladly assist you with any additional information you might need.