In our previous post, we have a tendency to gave a general summary of what staff Comp insurance is, and ran through a handful of samples of however the policy can be discovered. we actually restricted that to some terribly general data. Today, we’ll begin entering into additional detail by going over one specific part of each staff comp policy – the Worker Compensation Audit.
What is the worker's compensation audit and what is its purpose?
First of all, take a breath. The word “audit” encompasses a pretty negative connotation and might be taken to mean AN intrusive, troublesome, and adversarial methods. That’s not usually what the Worker Compensation Audit is, and undoubtedly not what it ought to be. as a result of your employees, Comp policy premium relies upon what your staff does and what their payroll is, the nondepository financial institution verifies this data via AN audit, and it’s typically a good and easy method.
If you’re coping with a third-party company and you’re unsure if they extremely represent your carrier – contact your agent. Protect your info and your employees’ info is often vital.
Depending on the carrier, the scale of your business, or the business you're employed in, Associate in Nursing in-person audit could also be additional common. during this instance, the auditor ought to contact you to line up an arrangement and allow you to apprehend prior time what data you ought to wear hand.
Preparing for the Workers Compensation Audit
here are a couple of things that you should have ready for the audit. These include:
- Payroll Reports from every check date between your policy’s effective dates.
- Summary reports are the best way to go – they have the same information and help reduce the amount of paperwork.
- Quarterly 941 Reports from the 4 quarters closest to your policy period
- Quarterly UC-2 Reports from the 4 quarters closest to your policy period
- Gross Receipts (not all carriers ask for this, but it is becoming a more common practice)
If you don’t have these reports on hand, you can usually get them pretty easily from your payroll company.
An audit can be completed with this information for many businesses; however, there is additional information needed if you use subcontractors or 1099 independent contractors.
Subcontractors & Certificates of Insurance
Almost every audit asks if you employ any subcontractors or 1099 freelance contractors. If you don’t, merely answer no and that’s all that’s usually required. If you are doing ever use subcontractors, certify you've got Certificates of Insurance that show that they had their own employees' Comp coverage at the time they worked for you.
The use of subcontractors and how it relates to your Worker Compensation Audit is a complicated topic and we’ll address it in specific detail in part 3 of this series.
Requirements to Complete and Penalties for Non-Compliance
The Audit could be a demand of your Worker Compensation Audit policy. this can be a policy condition and there’s no manner around not doing it. notwithstanding you’re listed in an exceedingly Payroll asking program (more on this below), the audit continues to be needed.
If you don’t complete the audit, the primary step the carrier takes is going to be to “estimate” the audit. The “estimated” audit can generally assume that you just had doubly the number of payroll you had originally calculable, and you’ll be charged the premium related to that payroll increase. If that premium isn’t paid, the carrier will then cancel your coverage.
If the audit is “estimated,” you'll charm to the carrier to finish the audit, which is commonly as straightforward as giving them the data they originally asked for. If you pay the calculable audit premium however don’t complete the audit, it’s possible your carrier can non-renew your policy unless it’s completed. once your policy is non-renewed for this reason it will be onerous to search out replacement coverage.
In short, the carrier has effective options to enforce the completion of the audit and it usually benefits you to complete it as early as you can.
Workers Compensation Audit Results
Once Associate in Nursing audit is completed, you’ll receive a press release from the carrier outlining the variations between what you paid throughout the year and also the adjusted premium due, supported your actual payroll. Typically, if you have got additional payroll than originally calculable, there'll be a further premium due. the alternative holds true additionally – if you had less payroll than originally calculable, there'll usually be a premium refunded to you.
An exception to the current would be if payroll were assigned to the incorrect category code originally. as an example, if you had all staff assigned to the “Office” category, however really qualify for the “Salesperson” category, you'll be able to have payroll decrease and still be charged an extra premium as a result of the Sales category encompasses a higher rate.
All staff Comp policies are subject to minimum premiums as determined by the classifications your workers qualify for. It doesn’t return up too typically, however, minimum premiums will forestall a refunded premium, notwithstanding you have got less payroll than originally calculable.
Payroll Billing Program
One of the simplest ways that to combat the uncertainty relating to your employees' Comp premium is to enter in a very Payroll request (aka Pay As You Go, aka PAYGO) program. This program coordinates your payroll company and your insurance carrier to accurately track payroll as it’s being accordingly. once it works dead, there's a negligible distinction between the employee's Comp premium you pay and also the final premium determined by audit.
Unfortunately, the Worker Compensation Audit continues to be needed, even once registered during a PAYGO program, however, it's usually easier to finish. We’ll enter additional details concerning the Payroll charge programs that square measure out there in another post.
Looking for More?
This post is part of a series aimed at providing more information about Workers Compensation. Any additional information we’ve published will be linked here as they get posted:
Workers Compensation: What Is It & How Does It Work?
