“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.
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.
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!
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:
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.
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.
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.
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.
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.