When it comes to workers’ compensation policies, annual premium audits have taken the place of estimated premiums. This means that the audit process is extremely important as it can help you avoid errors that might drive up your workers’ compensation premium.
In order to help you avoid errors and keep your premium low, we’ve provided you with the following checklist!
Before the Auditor Arrives
1. When you schedule your appointment with the auditor, be sure to obtain a name and phone number. If you need to change or cancel your appointment, do so promptly.
2. Choose an employee to be the auditor’s primary contact. This individual should be:
- Familiar with all departments and employees.
- Familiar with the payroll records being examined by the auditor.
Additionally, your contact person should examine and evaluate prior years’ billing statements and worksheets to understand previous issues that may resurface.
3. If employees are involved in more than one operation, double-check that you have documented the actual gross payroll spent by each employee in their different workplace exposures.
- Avoid payroll estimates! Gross payroll should be organized by employee and department with monthly/quarterly or year-to-date totals. You must also include the work performed by each worker and their job title.
- If your payroll records aren’t broken down by workplace exposures, the auditor will assign it the most expensive applicable classification.
4. Have all your workers’ compensation documentation prepared. This includes certificates showing that subcontractors or 1099 independent contractors have their own insurance (if applicable)
- If you fail to obtain and present this information to the auditor, the auditor will charge your business the premium charge for this exposure.
5. Review and highlight payroll documents for overtime pay. This is so that the auditor can discount it back to normal pay, which is allowed in most states.
- The auditor likely won’t have the time to perform the premium portion of your overtime pay so make sure the records are organized and easy to read.
6. Review all classification codes assigned to your job contacts. Double-check these codes as some individual jobs may be subject to different codes.
- If the auditor is not presented this information, he/she will have to review your invoices.
When the Auditor Arrives
1. Provide the auditor an ideal place to do his/her work. Clear a desk and provide good lighting and minimal noise. Be sure to provide all the payroll records previously mentioned with your state and federal tax records, cash disbursement log/checkbook, ledgers, and job contacts.
2. When the auditor has completed their work, remember to ask for a copy of the worksheets.
- Copies aren’t normally provided but can be requested
- These worksheets can show you how the audit was done, how he/she calculated the payroll numbers, and what codes were used.
- Confidential payroll information is contained on these worksheets so be sure your point person handles them appropriately.
After the Audit
1. Compare the completed audit billing statement to your original policy.
- Balance the payroll figures to the audit documents. Make sure there aren’t any major differences between the figures provided and the payroll total on the policy.
- Check that all classification codes on the policy match those on the audit.
- Compare the mod factor on the original policy to the one on the audit. Double check that the auditor applied the correct factor for the period audited.
- Check the rates being charged for each classification code. Make sure there are no drastic changes between the audit and original policy’s rates.
- The Schedule Credit or Debit from the original policy should not have changed.
2. Contact the auditor with any questions you may have or to make necessary revisions.
ERM Insurance Brokers in Irvine, California can work with you to design coverage that’s custom-fit for your business.
Call (949) 222-0444 to speak with an expert.