Workers compensation audits are routine for any business that has workers’ compensation insurance. There are lots of things you can do throughout the year and immediately before the audit to make the process painless. More importantly if you keep up with this all year long you drastically reduce cost errors in an audit.
Audits are conducted either in person or by a paper form (or web submission). After your policy expires you will receive notice of one or the other. If you have been in business for a while you are very familiar with this process. What you may not realize is that with a few small changes in your record keeping throughout the policy term you can save yourself hours of time. You may also save in your total workers’ compensation premium not to mention avoid errors in both your policy and audit that could result in thousands of dollars you owe the insurance company.
Questions to Get Answered Before the Audit
Check if the owners of the business entity elected to be covered or elected to be excluded from workers’ compensation. You can look at your declaration page or call your agent if you are not certain. Remember if owners are excluded the payroll for the owners is not reported.
Do you offer paid holidays, sick time or housing allowances for any employees? If you do the amount paid for these items must be included in the wages for those employees.
If your employees receive tips it is important to track them separately in your payroll because tips are not included as wages so you are not charged for the dollar amount.
Do your employees have more than one job duty? If you track by the job the amount of time an employee spends doing each job duty, then it is possible the wages for that employee can be split by classification. This is very helpful if some of the job duties are very expensive workers comp class codes.
Independent Contractor or Subcontractor? An independent contractor needs to provide a certificate of insurance or the amount charged by that contractor will be included in your workers’ compensation as an uninsured contractor. In order to be considered an independent contractor that person should preform work to several different customers and provide you with a specific service for a pre-determined price. If you are in doubt you should discuss it with your agent prior to the audit.
Summary Worksheet – You will receive this form from your workers’ compensation insurance company. Go ahead and complete this form before the audit so if you have questions you will have the opportunity to discuss it with your insurance agent.
Payroll Reports for the workers’ compensation policy period.
Payroll Tax Returns 941, State Unemployment Wage Reports, 1099’s, 1040c (Schedule C), 1120, 1065 etc…
Certificates of Insurance – You should have a certificate for every subcontractor that you have done business with during the policy period. The certificate policy period needs to cover the policy period for your workers’ compensation policy so you may need more than one certificate from a single subcontractor.
Cash receipt journal, checkbook, general ledger, payroll and disbursement journals
1. Provide the auditor with a clean desk space to work.
2. Give the auditor the information you prepared in advance.
3. Do not offer any additional information unless the auditor asks.
4. You may be asked to give the auditor a tour of your facility for the auditor to verify the type of business operation you have.
5. If you are asked a question by the auditor you do not know the answer to or for information you don’t have available to you be honest and upfront. Do not guess.
6. Ask the auditor for a copy of the auditor’s worksheets at the conclusion of the appointment.
The workers’ compensation audit is not just an annual event. It is something you should be monitoring quarterly or more frequently if your operation is growing. Small changes in your record keeping will have a big impact on the ease of the audit and could affect the premium you pay. Things like keeping accurate certificates of insurance on file for independent contractors and classifying time at jobs will save you thousands of dollars. Your agent should assist you in reviewing your operation and making suggestions to help you minimize your overall expense and put that money on your bottom line.
BONUS TIP: Click Here to get a FREE Workers Compensation Renewal Checklist or look for it on our blog Chalk Talk