Workers Comp Audits

How to handle a workers comp audit and what you should know.

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Workers’ compensation requirements can differ between states, however many policies include a routine premium audit process. Depending on the results of a premium audit, a company may either owe additional premium funds to their insurer or have premium funds returned to them.

Work comp audits can seem overwhelming.

However if the proper preparation is taken then they are easy to complete.

Start by collecting all of the following materials necessary to streamline the audit process:

1. Payroll records
2. Profit & Loss statement
3. Unemployment tax returns

4. Form 1040 Schedule C (if sole proprietor)
5. Tax reports (Federal Payroll 940s or 941s)
6. General ledger, subcontractor ledgers and journal (or 1099s)

7. Certificates of insurance for subcontractors - remember if the sub contractors that one’s company hires does not supply their own workers comp insurance then the company may have to provide coverage for them and it will be picked up in the audit process.

8. Workers’ compensation insurance policy
9. Employee information - including hourly wages and work comp classifications, and
10. Corporate officer information - including ownership and percentages.

With all of this information the audit can be conducted and the final audited premium numbers can be generated.

If you receive a large audit bill, do not be discouraged. Do your own audit of the information and verify the totals.

If the audit bill is indeed correct, you can ask for a payment plan and most of the time they will grant you one.

If you’d like to completely avoid workers compensation audits, there is only one way: work with a PEO.

PEO’s collect workers compensation premiums and payroll taxes with every payroll cycle.

The PEO verifies the payroll each pay period just like a payroll processing company.

Then it sends the client company back a bill that includes the payroll being collected, workers compensation premiums, and payroll taxes to the exact penny based on the payroll reported for each employee.

Since the workers comp premiums being collected are already audited each pay period by the PEO, there should not be any audit discrepancies.

Please contact us with questions about any insurance or risk management topic. We will see you again soon!