The ultimate value of your workers’ compensation audit program is decided by a variety of things, not the smallest amount of that is your final audit. The workers’ compensation audit method may be confusing, advanced and, if done incorrectly, expensive. It doesn’t facilitate that the audit method is about up so most errors profit the insurance underwriter.
The company could merely raise you to send the data required to perform the audit or could prefer to conduct a physical audit in your workplace. In either case, the auditor can most likely need to visualize your State quarterly wage and withholding reports (DE-6s), payroll journals, and any antecedently filed payroll reports for the amount being audited. sometimes, different records that relate to your workers’ compensation policy could also be requested yet.
Regardless of which records are requested, it is imperative that the payroll is placed in the appropriate classifications and that any rules that could work to your advantage are employed.
Understanding the Audit Process
The following information will help you better prepare and understand the audit process.
- Premium Basis – Your premium is predicated on gross payroll, not web payroll. Gross payroll includes salaries, commissions, bonuses, vacation and vacation pay, sick pay, overtime payments (which will after be deducted), the worth of gifts, all substitutes for cash attained or paid throughout the policy amount, together with meals and lodging in the office of wages, automobile allowances, associate degreed any quantity by that an employee’s remuneration is reduced to fund a pension or postponed compensation arrange.
- Appropriate Classifications – Don’t overlook clerical and sales classifications. In addition, if you have several classifications on your policy with various rates, make sure you understand the differences so you can classify your employees in the most favorable category.
- Split Payroll Classifications – Some payroll categorification enables you to separate AN employee’s payroll among varied class codes (recognize that a lot of codes, as well as clerical, don't enable this split). so as to require advantage of such a split, correct payroll records should be unbroken that specifically determine time worked in every classification.
- Dual Wage Classifications – Some construction and erection operations divide employees into two separate classifications based on an employee’s hourly wage rate. Premium rates are higher for the lower hourly wage rate. In order to take advantage of the higher wage rate classification, the law requires that time cards or time logs must be kept that show actual hours worked and start and stop times for each employee for each day. The timekeeping requirements apply even if you pay the prevailing wage or have union employees.
- Executive Officers and Partners – govt Officers and Partners area unit capped for payroll functions. For 2014, the minimum quantity that AN officer or partner is charged is $39,000, and also the most quantity is $101,400. If you have got nonappointive to exclude govt officers or partners, ensure that their payroll isn't enclosed within the audit.
- Over time – you're not needed to pay staff compensation premium on the overtime portion of a wage. In alternative words, if someone UN agency ordinarily makes $10 associate hour works associate hour of overtime and is paid $15, you'd pay a premium for the overtime hour supported a rate of $10 per hour, not on a rate of $15 per hour. it's necessary that your payroll records be maintained to indicate the regular rate of pay, the overtime earnings by the worker, and an outline by a variety of operations performed that the auditor will offer you credit for overtime excess.
- Severance – If you have paid severance to anyone in the past year, you can deduct this from your audit. You are not required to pay workers' compensation premium on severance pay.
- Payments to Inactive staff – Payments to inactive staff don't seem to be counted once hard your staff compensation premium.
- Third-Party pay – Were there any staff hurt on the work that received incapacity payments (short or long term) from an incapacity carrier or provider? If this third party payment was enclosed within the employee’s W-2 and/or payroll register, you'll deduct it.
- Travel Expense Offset – Did any workers receive further funds to offset travel expenses? this is often not indictable as payroll.
- Form 1099 – If anyone was paid by Form 1099 through your payroll, was this amount deducted for workers' compensation purposes?
- Uniform Allowance – Was something additional to individuals’ payrolls to catch up on needed work garments or safety equipment? If thus, this will be subtracted.
- Any Other Additions or Exclusions – Other than base pay, bonuses, and commissions, were there any other additions or exclusions to payroll?
- Subcontracted Work – If you subcontract work you will be asked to supply basic information about your subcontractors and verification that they have appropriate insurance. Recognize that if they do not carry the appropriate insurance, you will be charged a premium based on their exposures (see the attached explanation of how that premium will be charged).
- Owner- Controlled Insurance Programs (‘Wrap-Up’ Policies) – Were you involved in an owner-controlled insurance program (‘wrap-ups’) that extended to workers' compensation? If so, you can deduct the payrolls included under the ‘wrap’ from your payrolls submitted for the audit.
Preparing Your Audit Package
Once you have all of your records in the order you should prepare an Audit Package to give to the auditor when they arrive.
- Classification – Use a spreadsheet to place each employee into the correct classification (Exhibit 1). Any questions as to where to classify specific employees should be discussed with your broker.
- Remuneration – Adjust for excluded remuneration.
- Adjust for Exempted or excess corporate officers’ payroll.
- Delete the overtime portion of any payroll.
- Summary Statement – Total payrolls for all classifications and prepare a Summary Statement (Exhibit).
- Owner Controlled Insurance Programs (OCIP) Payroll – Keep separate records of OCIP payroll and exclude it from your audit payroll.
- Time Cards or Time Logs – If you are using dual wage classifications, have time cards or time logs showing actual hours worked and start and stop times for each employee available for the auditor to review (Exhibits 3 & 4).
- Subcontractors – If you employed any subcontractors, compile the appropriate Certificates of Insurance and have them available to show to the auditor.
- Uninsured Contractors – Confirm that any uninsured contractors are placed in the appropriate classification.
The Auditor Arrives
- Treat the Auditor as a Welcome Guest – Assign a knowledgeable and friendly person to work with the auditor. Treat the auditor as a welcome guest.
- Audit Package – Present the auditor with your Audit Package.
- Volunteer Nothing – Answer the auditor’s questions, but do not offer gratuitous information.
- Premises Tour – Provide the auditor with a tour if he/she wants one, but don’t allow him/her to roam freely and unaccompanied around the workplace.
Final Comments
In general, the insurance companies’ auditors do a wonderful job. If, however, you've got queries or suppose the audit could also be inaccurate, you ought to contact your broker. If done properly, the audit method can lead to an associate degree acceptable premium charges. If done incorrectly, it may end up in dramatic overcharges. The key to creating sure your audit is finished properly is to know the method and prepare consequently.
