How To Prepare for Your Work Comp Audit

It is mandated by your company’s workers compensation insurance policy that you submit to a work comp audit when requested. At the expiration of the workers’ compensation insurance policy, you will be sent an audit request to determine whether there are still premiums that need to be paid or there is some credit due to you because of some work comp code changes. There are steps that you need to follow when you prepare for a work comp audit. One thing you must remember is that you should only give the auditors the papers and records that they ask for, nothing more.

  1. Assign someone who is very knowledgeable about your employees, their job descriptions and their salaries to be the only contact person of the worker’s compensation auditor to prevent miscommunication.
  2. If the insurer has allowed for payroll separation, make sure that you have adhered strictly to the guidelines for payroll separation. This can give you a lot of savings when you can classify individual employee into different worker’s compensation codes, based on the work that they perform. Payroll separation is more common in the construction industry where a single worker can perform different jobs.
  3. Have your employee records, your payroll records, certificates of insurance, records of cash disbursements ready. You should also have on hand federal tax reports for the period covered by the worker’s compensation insurance. Prepare a comprehensive description of your business operation that is most likely to be requested.
  4. When you do the payroll records, separate the amount of overtime pay from the regular salary. Separate and summarize them based on work comp job classifications for each employee. Overtime pay should not be included in the base pay of your employees. If you made the mistake of including this in their base pay, this will increase the cost of your insurance premium.
  5. Ensure that the certificates of insurance are all current. All the subcontractors that you have used during the work comp policy period should have their own work comp insurance also. The certificates of insurance should clearly state that there is worker’s compensation coverage and that the coverage is during the period that the subcontractor worked for your company.
  6. Employee records should state all the duties and responsibilities of each employee, the total number of employees you have in your payroll and the total number of weeks and the hours they worked for the year.
  7. Cash disbursements should include the amount you paid for casual labor, subcontractors as well as the cost of materials.
  8. Anticipate all the questions that an auditor will ask. Review the previous year’s work comp audit for reference. You should be able to get on top of things to get the maximum benefit from the audit. If you cannot provide answers to an auditor’s questions and present proof, the auditor will choose the highest codes that will be very beneficial to the insurance company.
  9. Differentiate the permanent employees from the independent contractors and hired temporary staff. Temporary staffs are covered by the worker’s compensation insurance of their staffing agency and not yours. Independent contractors should provide you with proof that they are covered by their own worker’s compensation insurance, otherwise they will be placed under your payroll and your premium will increase.

Strive to be as accurate as possible in your record keeping. Details are very important and can make a difference when it comes to worker’s compensation. Check all the work comp codes that are indicated in your work comp policy and endure that these are all applicable to the type of work that your employees do.


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