How to Prep for Your Workers' Comp Audit | Pie Insurance

Workers’ comp insurance audits aren’t that scary

“I just can’t wait for my audit!”

Said no one. Ever.

But for small business owners, who typically need workers’ compensation insurance, an annual audit is just part of life. Luckily, it’s not as bad as you might fear. Being prepared and equipped with the right information before you start can relieve some of the stress associated with the dreaded “A-word.”

The name alone may bring up images of taxes, the IRS, and expensive penalties. Don’t worry! A workers’ comp insurance audit isn’t like that. On the contrary, it’s a routine part of every workers’ comp policy for every business, regardless of size.

What is a workers’ comp insurance audit?

Each year when you purchase workers’ compensation insurance, your premium is based on a variety of factors. These include the type of work your employees perform (designated by their workers’ comp class code) and the total amount of payroll the company expects to pay to all employees combined.

When you start the policy, you may not know exactly what the future year will bring. It’s very common for businesses to hire and fire employees throughout the year, and bring on employees in new capacities that fall under different job classifications. Workers’ compensation insurance policies are designed to accommodate these realities. That’s why, at the end of each annual policy term, the insurer will perform an audit and adjust your premium to align with what actually happened in your company during the year—if it differed from what you predicted.

Is a workers’ comp audit expensive?

If your biggest fear is an unexpectedly large workers’ comp insurance premium bill, you can rest easy knowing it’s not likely. While it’s very common for the premium to be adjusted after an audit, it’s typically not a dramatic difference from the estimated premium you paid at the start of your policy term. Sometimes, you can even receive money back if your actual premium comes in lower than the one based on your earlier estimates!

Getting ready for your audit: a step-by-step guide

Good record-keeping is one of the most basic things you can do to make the workers’ comp insurance audit process go more smoothly. If you don’t have to spend time searching for documents and information, you’ll be ready to submit everything that’s needed in a way that lets the auditor work efficiently. Keeping good records throughout the year will make this process much easier.

From there, these steps explain what you’ll be doing as you go through the process of your annual workers’ compensation insurance premium audit:

Step one: update job descriptions

Since your workers’ compensation insurance premiums are based on what types of work your employees are performing (specifically, how dangerous the job is), you’ll need to make sure you have accurate job descriptions that reflect what the employees are really doing. There are other reasons you’ll want to always have accurate job descriptions for your employees, so a best practice is to keep them updated throughout the year. This will make your life easier at workers’ compensation audit time.

Step two: collect all relevant documents

Your workers’ comp insurance carrier will provide you with the exact requirements for completing your audit, but generally, you’ll do well to have these pieces of information handy.

• A description of your company’s operations
• A detailed job description for each employee
• The number of employees working at each location
• Names and titles of your company’s owners and officers
• Descriptions of any contractors or subcontractors your company used in the preceding year
• Payroll records, listed by employee, including salary, bonuses, overtime, commissions, etc.
• Access to your business bank accounts
• Your company’s accounting general ledger
• All W2 and 1099 forms issued in the previous year
• Receipts for payments made to any contractors, casual laborers, and materials or supplies your company purchased
• Certificates of insurance coverage demonstrating workers’ compensation insurance in place for any contractors

Step three: organize your records

Once you’ve collected all necessary documents, organizing them by type will help your audit go more smoothly. For example, keep everything related to employee payroll together, keep contractor information together, and keep all job descriptions together.

Step four: provide only what the auditor requests and no more (or less)

Don’t make your auditor wade through unnecessary paperwork. Provide exactly what your workers’ comp auditor requests, and no more. On the other hand, don’t skimp on necessary information. That could cause delays and further back-and-forth in the process.

Step five: keep an open line of communication with your auditor throughout the process

Depending on the specifics of your business, your workers’ compensation audit may be as simple as filling out some online forms. Or, it could be as complex as an on-site visit. It’s a good idea to communicate with your auditor and ask questions if anything is unclear. You also want to carefully review any documents your auditor presents you with and not sign anything that’s incorrect or incomplete.

So, while we can’t guarantee the annual workers’ compensation insurance audit process will be fun, it shouldn’t be too painful as long as you know what to expect and come prepared with everything you need.

Remember, every situation is different and state workers’ compensation laws are subject to change, so be sure to do your research and speak with a trusted advisor.

Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation insurance or check your current rate in 3 minutes.