Understanding Workers’ Compensation Premium Audits
Workers’ compensation requirements vary by state, but many policies include a routine premium audit process. Depending on the audit results, a company may either owe additional premium funds to their insurer or receive a refund.
How to Prepare for a Work Comp Audit
Work comp audits can seem overwhelming, but with proper preparation, they are easy to complete. Start by gathering the following documents:
- Payroll records
- Profit & Loss statement
- Unemployment tax returns
- Form 1040 Schedule C (if sole proprietor)
- Tax reports (Federal Payroll 940s or 941s)
- General ledger, subcontractor ledgers, and journal (or 1099s)
- Certificates of insurance for subcontractors – If subcontractors do not provide their own workers’ comp insurance, your company may be responsible for covering them, which will be reflected in the audit.
- Workers’ compensation insurance policy
- Employee information – Including hourly wages and workers’ comp classifications.
- Corporate officer information – Including ownership percentages.
What Happens After the Audit?
Once the audit is completed, the final audited premium amount is determined. If you receive a large audit bill, don’t panic. Review the audit information carefully and verify the totals.
- If the audit bill is accurate, you can often request a payment plan from your insurer.
- If discrepancies are found, you may be able to dispute the audit results with supporting documentation.
How to Avoid Workers’ Compensation Audits
If you’d like to avoid workers’ compensation audits entirely, working with a Professional Employer Organization (PEO) is the only way.
- PEOs collect workers’ compensation premiums and payroll taxes with every payroll cycle.
- Payroll is verified each pay period just like a payroll processing company.
- The PEO sends the client company a bill that includes payroll, workers’ compensation premiums, and payroll taxes based on the exact payroll reported for each employee.
- Since workers’ compensation premiums are audited in real-time, there should be no discrepancies or large audit bills.
Final Thoughts
Understanding and preparing for a workers’ compensation audit can save your business time and money. If you have any questions about workers’ compensation or other risk management topics, please contact us. We look forward to assisting you!
