[COLUMN] Your workers’ compensation policy is audited. What now?

Relax. This is a normal process. Think of it as an end-of-year review of records to ensure that your business has paid the correct premium for workers’ comp insurance. During the audit, your insurance provider usually cross reference the payroll and other records estimated at the beginning of the policy with the actual payroll and scope of work performed during the policy period, usually one year. If there is a discrepancy, the premium for the workers’ comp insurance is adjusted for the policy year.

This is simply a way to verify your estimated payroll and help make sure you’re paying the right amount for the right coverage. Some states, workers’ compensation audit is also a legal requirement.

When you purchase workers’ comp insurance, you are projected to estimate your total payroll and the different types of work your employees will do during a policy period. This estimate is what your insurance carrier along with other factors use to calculate your premium. At the end of the policy term, they verify the actual payroll and scope of work done by your workers to the projected estimate when the premium was initially calculated. The audit is a way to make premium adjustments depending on actual payroll and work done. After the audit, the employer may end up with any of these 3 likely scenarios:

  • No cost difference when actual risk or payroll match your estimate.
  • You may get a refund if your actual payroll or risk exposure is less than projected initially.
  • You may owe more than quoted when your payroll or risk exposure is more than estimated.

The reasons for adjustments can be attributed to change of payroll volume, # of employees, change of job duties and responsibilities, among other factors.

Audit may be performed by mail, phone, or in-person, depending on the auditor and the business type.

How to prepare for an audit:

  • Accurate, timely, record keeping is vital. Document the # of employees at each location, names and titles of owners/officers, job description for each employee. The auditor will confirm your business operations and each employees’ duties to ensure your estimates of risks tally with the actuals.
  • Access to your payroll records. Auditors will need to see your payroll journal, W2, 1099, Quarterly reports and other tax forms.
  • Name and contact info of your CPA.
  • Review the audit documents carefully. Ask and verify the information jotted down by the auditor. Do not sign off on incomplete documents.

Why is Workers Compensation policy a big deal? It is an essential type of business insurance to have, if not mandatory in most states. This insurance is primarily responsible to give benefits to employees who succumb to illness or get injured while at work. The benefits in this policy assist them financially as well as help them recover medically and return to their job.

It’s important to know the difference between workers compensation vs health insurance vs general liability policy.  Note: It is a common mistake among business owners to assume that your general liability policy or health insurance covers workers comp claims. The former usually takes care of claims when your business hurt somebody or damage others property while the latter usually excludes work related injury or illness.

Moreover, workers’ comp helps cover your employee’s missed wages from illness or injuries related to work. It can also provide funeral benefits to their family if they pass away after getting injured at work. While health insurance generally does not provide those type of benefits.

While workers’ compensation insurance is an important piece of your business insurance portfolio, getting the right coverage can be challenging. That’s why it is important to work with an experience agent and trusted insurance company.

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Melody Avecilla is an insurance expert. Her one-stop-shop agency has been a preferred go-to insurance resource for over a decade. She has a Masters in Business Administration from Loyola Marymount and earned her CLU (Chartered Life Underwriter) designation at The American College. Her team has been voted best in the industry for years in a row. Fun fact about her. She has  multiple patents for the world’s first retractable high heels. In between work, she hosts a global leadership podcast called “dreamers to leaders.” She’s takes a hyper focused  approach in elevating customer experience in running her businesses.  Insurance is her flag ship enterprise. For more information, visit www.costwiseinsurance.com, call (818) 506-3276, or send an email to [email protected].

     (Advertising Supplement)


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