5 Tips to Survive a Workers' Compensation Insurance Audit

Workers compensation insurance audits can be daunting. If you’ve received a letter from your insurance company letting you know an audit is on its way, you may be asking yourself questions about what information they’re going to need and how to prepare it.

This blog will help you understand and prepare for a smooth and productive audit. We’re going to cover:

• What a workers' compensation insurance audit consists of.
• Who will be subjected to these audits, including circumstances that may make you more likely to experience one.
• 5 tips for ensuring a smooth audit process.
  
  

Having the right support and knowledge can make all the difference in helping you survive a workers' compensation insurance audit.

What is a Workers' Compensation Insurance Audit?

A workers’ compensation insurance audit is a review conducted by your insurance company to ensure accurate premiums. Your insurance company needs to perform audits like these to ensure your premiums are aligned with your company’s actual payroll figures and job classifications.

A typical workers’ compensation insurance audit involves reviews of the following:

• Financial records including tax documents like your quarterly or annual tax filings, profit and loss statements, and balance sheets.

• Payroll documents that provide information on employee wages, overtime, bonuses, or other compensation.

• Employee information like job classifications, rosters, safety and training records, incident reports, and claims.

By reviewing information like this, the insurance company can make sure your company has the appropriate coverage according to your risk exposure.

Discrepancies uncovered during the audit can result in adjustments to your premium. For example, the insurer may owe you a refund if you were undercharged. On the other hand, if your premium is too low, you may receive additional charges.

Ultimately, a workers’ compensation insurance audit aims to ensure fairness and accuracy in the insurance system.

Who is Subject to Workers' Compensation Insurance Audits?

Any company with workers' compensation insurance coverage can be audited by its insurance company to verify accurate premium calculations.

However, certain circumstances may make your business more likely to experience an audit:

• Due to the nature of their work, companies in high-risk sectors like construction, manufacturing, or transportation may be scrutinized more closely.
• Any business that has experienced significant changes in payroll, staffing levels, or job classifications may be subject to an audit soon after.
• Businesses that use subcontractors or have fluctuating seasonal workforces might also be audited to ensure compliance.

If your company is subject to an audit, it typically begins with a formal notice. This may arrive via mail or email and should outline the reason for the audit and the time frame in which it will occur.

If you’ve received a notice like this, here’s how to ensure a smooth audit process.

5 Tips to Survive Your Workers’ Compensation Insurance Audit

Ensuring a smooth and error-free process is the key to surviving your workers’ compensation insurance audit. That means preparation is your friend.

1. Prepare the Appropriate Documentation

To navigate a workers’ compensation insurance audit smoothly, thorough documentation is crucial. This includes:

• Payroll Records: Ensure you have detailed payroll reports for the audit period, including gross wages, overtime, and bonuses.
• Tax Filings: Gather federal and state tax filings, such as quarterly 941 forms and annual 940 forms, to verify payroll figures.
• Employee Timecards: Collect timecards or timesheets that show hours worked by each employee.
• Job Descriptions: Maintain updated job descriptions to support the correct classification of employees.
• Certificates of Insurance: For subcontractors, ensure you have current certificates of insurance to prove their coverage.

Having these documents organized and readily accessible will save time and help demonstrate compliance, minimizing potential discrepancies during the audit.

2. Ensure Accuracy In Advance

Accuracy in your records is paramount. Before the audit begins:

• Review Payroll Entries: Double-check payroll entries for any errors or inconsistencies.
• Classify Employees Correctly: Verify that employees are correctly classified according to their job duties and industry standards.
• Verify Subcontractor Details: Ensure that all subcontractor information is accurate and up-to-date.
• Cross-Check Tax Forms: Compare payroll records with tax forms to ensure figures match.
• Update Records Regularly: Maintain accurate records throughout the year rather than scrambling to correct them at audit time.

By addressing potential inaccuracies in advance, you can prevent costly errors and ensure that the audit process proceeds smoothly.

3. Train Relevant Staff

Properly training your staff is essential for a seamless audit experience. This involves:

• Educating on Record-Keeping: Ensure staff responsible for payroll and HR understand the importance of precise record-keeping.
• Clarifying Classification Rules: Train staff on the correct classification of employees based on their roles and responsibilities.
• Highlighting Compliance Requirements: Inform staff about the compliance requirements related to workers’ compensation insurance.
• Providing Regular Updates: Keep staff updated on any changes in regulations or procedures that may impact record-keeping and classifications.
• Conducting Mock Audits: Run internal mock audits to prepare staff for the actual audit process, helping them understand what to expect.

A well-trained team will be better equipped to provide accurate information and respond to auditor inquiries efficiently.

4. Communicate with Your Insurance Carrier

Effective communication with your insurance carrier can greatly ease the audit process. It's important to:

• Stay Informed: Regularly communicate with your insurance carrier to stay updated on any changes in audit procedures or requirements.
• Ask Questions: Don’t hesitate to ask your carrier for clarification on any unclear aspect of the audit process.
• Provide Updates: Keep your carrier informed of any significant changes in your business operations that may affect your workers’ compensation insurance.
• Seek Guidance: Use your carrier as a resource for advice on preparing for the audit and maintaining compliance.
• Resolve Discrepancies: If discrepancies arise, work with your carrier to resolve them promptly and amicably.

Maintaining an open line of communication with your insurance carrier can prevent misunderstandings and help you address any issues that arise quickly.

5. Conduct Internal Audits

Performing internal audits can help you identify and rectify issues before the official audit. Here’s how to go about it:

• Regular Reviews: Schedule internal audits to review payroll records, employee classifications, and subcontractor details.
• Use Audit Checklists: Develop and use audit checklists to ensure all aspects of your records are covered during the internal review.
• Spot Check: Randomly select records for spot-checking to verify their accuracy and completeness.
• Correct Errors: Identify and correct any errors or discrepancies found during the internal audit.
• Document Findings: Keep detailed records of your internal audit findings and the steps to address any issues.

Regularly auditing your records internally ensures you are always ready for an official audit and helps maintain the integrity of your worker's compensation insurance processes.

Partner With BBSI Risk Consultants Before Your Next Workers' Compensation Insurance Audit

Thorough preparation, accurate record-keeping, communication, and internal reviews can save you time and money during the audit process. The tips we’ve provided in today’s post will help your business avoid costly discrepancies and complete the audit as quickly as possible.

However, if your company has more complex problems than the ones we addressed in today’s post, engaging a risk consultant can help.

BBSI is a PEO that specializes in helping companies with compliance related issues. We’ve got decades of experience helping businesses of all sizes and in every industry predict and prepare for audits.

With our expertise, you can handle any audit with confidence.

If you’re about to be audited and want an expert opinion, reach out to your local BBSI representative today.