3 Tips to Prepare for a Workers’ Comp Audit

There’s no denying that workplace injuries are on the rise. According to HSE (Health and Safety Executive), 1.8 million workers suffered work-related injuries in 2021/22. A staggering 36.8 million working days were lost owing to non-fatal workplace injury and work-related ill health. In 2021, the total cost of workplace injury was $167.0 billion. That’s a whopping amount!

Fortunately, businesses having workers’ compensation programs in place don’t have to bear this expense out of their pockets. Workers’ compensation insurance pays benefits to workers in case they get injured or disabled as a result of their jobs.  

Sure, workers’ compensation minimizes your risk of a crippling financial loss. But did you know that insurance providers often conduct workers’ comp audits? They do so to ensure coverage premiums are accurately priced. 

Navigating a workers’ comp audit might seem daunting, but it isn’t. Preparing for it beforehand can minimize the stress. In this blog, we’ll share a few tips to help you prepare for a workers’ comp audit, making the process more manageable. 

Workers’ Comp Audit: What is it?

The end-of-year assessment of records is known as a workers’ comp audit. The purpose of this audit is to make sure that your enterprise has paid the correct premium for workers’ compensation insurance. This audit can be done via email, phone, or in person, depending on the business type and the auditor. 

Generally, a workers’ comp audit is done to verify if the payroll and other data quoted at the start of the policy match the actual scope of work and payroll executed during the policy period. In case the data doesn’t match, the workers’ compensation insurance policy price is modified for the policy year. 

After an audit, if it’s found that you paid a low premium, you will have to pay the difference amount. You won’t have to pay it right away. Instead, your insurance provider will give you some time to pay the premium. Conversely, you will receive a refund in case you overpaid the premium for workers’ compensation. 

Tips to Prepare for a Workers’ Comp Audit

The key to a smooth and successful workers’ comp audit is proper preparation. In this section, we’ll let out some valuable tips to help you prepare properly for your workers’ comp audit.

1. Update Job Descriptions

While there are many factors that determine insurance premiums, Western Republic Insurance Services asserts that they are based on the dangerous activities employees discharge rather than the ones performed often. That is why auditors scrutinize every employee’s duty as well as the general operations of businesses during the audit process. 

There are two ways auditors examine the job responsibilities of all employees in the business. Your auditor will either ask you to complete a form that outlines the tasks performed by your employees or review existing job descriptions. 

Irrespective of whether your company has 10 employees or 50 employees, it’s advisable to opt for the latter option. We say so because misclassifications can lead to incorrect premium calculations. 

Conversely, accurate job descriptions will help your auditor assess the correct regulatory class code and its corresponding base rate. That way, there won’t be any miscalculations in your premium rates. 

To avoid errors, update your employees’ job descriptions or create them if you haven’t already. Click here to learn about how insurance companies can help you classify your workers accurately based on their job descriptions. 

2. Gather all Relevant Documents

Besides the nature of employees’ jobs, total payroll and claims history determine workers’ compensation costs. During the audit process, your auditor will review all the documents to ensure you are paying the right premium. 

Generally, audit notices specify the documents the auditor will require to complete the audit. While the list varies from carrier to carrier, many insurers ask for the following documents:

  • Description of the operation of your company
  • Number of employees working at each site
  • Detailed job descriptions of each of your employee
  • Names and titles of officers or owners
  • Payments made to casual laborers, independent contractors, and subcontractors
  • Receipts of purchased materials
  • Insurance certificates of subcontractors
  • All payroll records, including Federal Employer’s Quarterly Tax Return (Form 941)

Make sure to gather all these records, as that will minimize the possibility of errors in premiums. 

3. Exclude Overtime

Overtime pays are often irregular, which is why it’s best to remove them from the audit.  

Moreover, overtime pay calculations are complex, especially if businesses have varying overtime policies. In case you don’t remove them from your records, there’s a high possibility of errors in premium calculations. As a result, you will have to pay more premiums than you should.  

Many businesses exclude overtime pay from workers’ comp audits, so you might as well do that. Not only does this simplify the audit process, but it also reduces premium costs. 

Wrapping Up

Navigating the workers’ compensation audit process might seem intimidating, but in reality, it isn’t. Having a basic understanding of the rules of the audit and proper preparation can simplify the process. 

By updating your employees’ job descriptions and keeping all records handy, you can give your auditor a clear picture of your company’s operations. Doing so will also save your auditor’s time and minimize the possibility of errors in premium calculations.