Preparing for a worker’s compensation audit can be a daunting process. Soon after the policy’s period has expired, the insurer can begin the audit. The basic purpose of the audit is to ensure that the premiums that the employers pay, accurately represent the risk of the employees. This is mainly performed to verify sub-contractor exposure, payroll and classification codes. If the class or payroll codes are not accurately reflected, the policyholder could end up paying additional premium.
For example, if you have 12 employees and increase to 15 without adjusting your policy, you could end up paying for all of the missed coverage, after the policy expires. The same goes for downsizing without modifying your policy; you have essentially overpaid, and will receive a refund. After that the company may adjust the current policy to reflect the results of the audit. Therefore, to ensure a smooth and fast audit process, it’s important that you, the policyholder, understand your policy and are well-prepared for the audit. Here are some important tips could help you in good standing with your Worker’s Compensation Policy:
Tip 1: Keep Accurate Documents & Financial Records
When preparing for an audit, make sure to have all important records and financial documents on hand, and ensure their accuracy. Remember, the auditor will need a variety of financial information for the period that is covered in the policy. Highly documented and accurate records will serve as proof of compliance and can keep you from a costly premium. These records include payroll, employee, accounts payable and receivable, cash disbursements, insurance certificates, a detailed business operation description that justifies your workers compensation codes, and experience modification worksheets. Employee payroll records should be kept together, and all subcontractor information separate. This will make the process faster and easier. Be sure to summarize and separate employee overtime paid by job classification as a premium will be charged on overtime wages.
Tip 2: Make Sure Your Worker Classification is Correct
During an audit the auditor will look to see if the insured business is properly classified. The classification is based on the business, not the individual employee. The classification system can be quite complex, so the nature of your business usually best determines your classification. Each classification is grouped into a category and assigned a rate based on the typical job site injuries for that class. Having the correct rate will ensure that there is enough coverage for the cost that is typical for the injury. If your policy reflects a class that doesn’t make sense, be sure to ask for clarification. An incorrect classification can create significant consequences.
Tip 3: Separate Payroll by Class Codes
If an employee has multiple duties or job classifications, they can be divided in to different class codes. It is important to keep accurate records and ensure that they reflect the work performed, and the hours apply to a multi-class separation. This is also known as Payroll Class Separation. If adequate records aren’t recorded, the entire payroll for the worker will be categorized in the highest rated class code.
Tip 4: Have Current Certificates of Insurance for Subcontractors
You should have certificates of Insurance (COI’s) for all subcontractors that were paid during the period of the policy. The COI’s should be organized and kept for all subcontractors. When doing so, make sure that the certificates prove that the subcontractors had workers compensation during their service period. If these COI’s aren’t kept or accurately recorded, then a premium could be charged according to the classification code.
Meeting the Auditor
When meeting with an auditor, you, or a trusted representative authorized to speak on the behalf of the insured, should be cooperative and truthfully answer the auditor’s questions. This representative should know and understand business operations, financial records, duties performed by all employees and the workers compensation policy. If you employ an offsite recordkeeper for your financials, this person will be an asset in providing information, but you should be present during the actual audit.
After the initial audit findings, a dispute may be filed if you feel that the payroll figures of classification changes were inaccurate. In this case, contact your insurer immediately and begin reviewing the dispute instructions located in your policy.
At Latorre Insurance, we understand that being prepared for an audit can be difficult and confusing. Avoid the hassle of an audit in 2018 by trusting Latorre with your worker’s compensation policy. As a Trusted Choice insurance partner, you can have peace of mind knowing that our agents have the much-needed knowledge and experience to provide our clients with proper assistance during an audit.
For more information about your worker’s compensation audit in North or South Carolina, contact a Latorre representative to get started at 844-311-9095.