Workers' Compensation insurance 101: Preparing for an audit

All workers’ compensation policies are subject to audit. They are typically performed by insurance providers on an annual basis.

Depending on your insurance provider, audits will occur roughly three to six months after the end of your workers’ compensation policy term. For example, if your policy is effective 1/1/2023 and expires 1/1/2024, you can typically expect the audit to occur between March and June of 2024. Reach out to your regional account team to find out the typical timeline for your insurance provider.

Even if your policy expires, your insurance provider still has the right to audit you in order to determine the final premium for your policy.

Audits can seem daunting, even though they are a standard practice for most insurance companies. Being well-prepared can alleviate some anxiety.

Be sure to maintain proper recordkeeping of all payroll documents and log any changes to job descriptions and/or business functions as they happen. These records typically include:

• Your accounting ledger
• Tax forms such as W-2, 1099, Form 941, Form 944, and federal tax returns
• Certificates of insurance for every subcontractor
• Detailed descriptions of each business function

When it is time for an audit, you will be notified by your insurance provider. The auditor will explain the process and clarify what forms you need to provide.

Once you have submitted the documents in the manner specified by the auditor, the auditor will notify you once the audit is completed. Your insurance company will then use the information gathered during the audit to update your worker’s compensation premium and coverage as necessary. At this point, you will commonly receive an audit summary from your provider explaining the results of the audit and how it has affected your premium and coverage.

If the audit found that your policy premium was too low, you will need to pay the difference in premium. Conversely, if your policy premium was too high, you will be issued a refund for the difference.

• Consider reporting your actual payroll to your regional account team every time you run it instead of waiting until the time of audit. This will help minimize the amount of time and effort you will need to spend gathering records at the end of your policy period and may bring to light accounting errors before they become major problems.
• Enroll in a pay-as-you-go billing option, if it is available under your plan. Instead of paying your entire policy premium in one lump sum based on your payroll estimates, with a pay-as-you-go plan, you pay a premium each billing period based on your actual payroll. Many of these plans are interlinked with payroll service providers, which can eliminate the need to inform your regional account representative of any payroll updates and reduce the likelihood of a premium adjustment at the end of the policy period.
• Ensure that your employees are classified correctly. Employees with a higher risk of injury on the job are assigned class codes and insurance rates that reflect that risk. When any of their job roles or tasks change to ones with different risk of injury, speak with your regional account representative to determine the appropriate classifications for your workers.
• Be proactive. Preparing for and going through a workers’ compensation audit can be a challenging process, but it does not have to be. Reaching out to your regional account representative before you are asked to complete an audit can help allay your concerns. They will be able to offer insight into your insurer’s auditing process and may be able to provide a checklist of necessary documents and sample premium audits.
• Workers’ compensation audits can be tricky. If you have questions around your workers’ compensation coverage, estimating payrolls, or audits, please reach out to a member of your dedicated regional account team.