What’s a worker compensation audit?

Workers Compensation audit is one of the most complex and highly regulated types of business insurance. It is designed to protect businesses and their employees from the costs of workplace injuries. This coverage may include medical expenses, furlough leave, or legal costs related to employee injuries. Employers pay insurance premiums, and insurance companies pay medical and other costs (depending on insurance terms) for injured workers against valid claims. 

Each state has different rules regarding workers' compensation insurance. This includes whether the company needs workers' compensation insurance and the premiums they charge for it. However, a common requirement in most states is that insurance companies must conduct workers compensation audit to ensure that businesses are paying the correct amount for insurance coverage. 

What is a worker compensation audit?

A workers' compensation audit, or workers' compensation audit, is a review of records that occurs at the end of the year. This is done to ensure that the company is paying the correct worker's compensation premiums. Depending on the type of examiner and company, this can be done by mail, telephone, or in person. 

During verification, insurers typically verify that the payslips and other documents provided at the start of the policy reflect the actual payslips and amount of work performed during the period of coverage. If the records do not match, the workers' compensation insurance price for that year will be adjusted. 

This check also evaluates whether the subcontractors we hire have their own insurance. Where this is not the case, policyholders may be billed based on payments to uninsured subcontractors. 

Why is a worker compensation audit needed?

When you take out workers' compensation insurance, you are usually required to provide an estimate of your total salary and the different types of work your employees will do during the period of coverage. The insurance company will use your estimate and other factors to calculate your workers' compensation premium. 

However, the estimated salary for the period of insurance (usually one year) does not always match the company's actual salary or workload. The amount of work required during the year may be higher than expected, and unforeseen circumstances may cause actual salaries to be less than estimated. Therefore, most state regulators require an annual review so that initial premiums can be adjusted appropriately. 

What happens after a worker compensation audit is conducted?

A workers' compensation audit confirms that you are paying the correct amount for the compensation you received. Several scenarios can occur when checking. Common examples are: 

• If the actual risks and salaries match the estimates, there probably won't be any difference in cost.
• If the actual risk or salary is lower than the estimate, the premium for that period of insurance may be less than what you originally paid, and the insurance company may be obligated to refund the difference.
• If the actual risk or salary is higher than the estimate, your premium will be higher than you originally paid and you may have to pay the insurance company the difference.  

Please note that it is common for rewards to change after review. Common reasons for discrepancies or risk between estimated and actual pay include:

• As the business grew or expanded, it had to hire more employees and increase salaries.
• You lay off some of your employees and cut salaries. again
• Your and your employees' professional work has changed over the years and has become more or less risky.  

In the former case, premiums will increase. In the second case it decreases. In the third case, the new premium will depend on the actual liability and its level of risk. To avoid surprises and questions during exams, you can keep your payslips up to date when companies change. Then your estimate is correct and you are ready for the exam. 

What to expect during a worker compensation audit

The processes involved in assessing workers' injuries vary slightly by insurance company, but the steps are generally similar to the Pie Insurance process. When it's time for a review (usually after he's one year from the policy or when he cancels the policy), we'll email you to let you know that our review partner will contact you shortly by phone. The proctor will explain the process and form and answer any questions you may have.  

Before you call, gather the information you need to answer questions about your employee's activities and salary during the policy period.

A virtual review of your documents will then take place and documents will be submitted to verify your payslip. Examiners may contact you by telephone or visit you in person to ask questions about your documents and records. Once this process is complete, we will review your information and, if necessary, use your updated records to adjust your rewards.

We will then send you an audit summary showing whether your premium was increased, decreased or stayed the same. Based on the results of the audit, we may need to take necessary actions. 

How to prepare for a worker compensation audit

Audits are standard procedure, but they can be daunting. Therefore, it is better to prepare well. However, to help reviewers complete their reviews quickly and efficiently, we recommend that you provide only the items requested by reviewers. You are not required to provide any additional information unless requested. The best way to prepare for an audit is to: 

1. Gather your records

Auditors need financial data for the duration of the contract. While specific documents and records may vary by provider and auditor, we recommend that you have the following on hand:  

General information

• Description of company operations
• Detailed job descriptions (if available) for each employee
• Number of employees at each location
• Owners/officers’ names and titles
• Description of contractor/subcontractor work

Payroll records

• Payroll journal or register
• Business checkbook
• Accounting ledger
• W-2 and 1099 forms
• Other tax forms
• State unemployment insurance tax reports (forms vary by state)
• Number of hours, days, and weeks worked annually
• Overtime records
• Bonuses
• Individual earnings
• Salaries, wages, and commissions

Cash disbursement records

• Payments made to independent contractors and subcontractors
• Payments to casual laborers
• Receipts for materials purchased

Insurance records

• Certificates for every subcontractor’s workers’ comp coverage

Once the data is ready, it's time to organize it. Consolidate all your payslips in an easily accessible way. It also keeps all subcontractor-related information (payments, insurance policies, etc.) together to make verification easier and faster. 

2. Update your job descriptions

Employee compensation costs are calculated based on two factors: Salaries and the risks employees face at work. Auditors will verify your business operations and the responsibilities of all stakeholders to ensure that risk assessments are consistent with actual results. 

Reviewers may review your job description or ask you to complete a form detailing each employee's job description. Either way, the key is understanding exactly what your employees are doing. A good way to do this is to update the job description to add more details, or create one if you haven't already. 

3. Make the auditing process easier

Prepare complete and accurate records to make the process smoother. Include only what the examiner has requested. Voluntarily providing more (or less!) information than necessary will make things difficult for both you and the examiner. Also, have owners or employees familiar with the company's management practices available to speak with the auditor. All these preparations make the job easier for both you and the examiner. 

Finally, it's always good to have reviewers working with you throughout the process, reviewing all the documents produced. Do not sign incomplete exam papers or ask questions that you do not understand. Always check the documentation carefully.  

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