As a business owner, you probably skill abundant effort goes into finding and maintaining the most effective Golden State workers' comp policy, from buying the most effective rates to creating positive you pay the acceptable premium throughout the year. Another a part of a regular workers' comp policy is that the end-of-the-year audit.
Insurance carriers perform audits to work out the correct quantity of workers' comp premiums that are owed for a policy term by auditing the insured’s payroll records for the invalid policy term. This method will appear tedious and overwhelming however their square measure easy belongings you will do to organize so the CA workers' comp audit goes swimmingly, quickly, and additional with efficiency. Let’s discuss what you'll expect and what you'll do to create audits easier!
Before the Audit
Once your California workers comp policy expires, you may receive a letter or phone call from the insurance carrier or auditor to schedule the audit and let you know what documentation they need from you. The date of the audit will be scheduled at a time that is convenient for you and gives you plenty of time to gather the requested records for the workers' comp audit questions. It is important to know that the auditor may or may not be an employee of your insurance carrier because while some carriers have in-house auditors, others hire a third party auditing firm.
In both cases, however, the auditing process will be the same. It may make you apprehensive to receive a call from someone working at a company you never heard of and requesting financial business documents from you but feel free to express this feeling and ask questions about their role and the auditing process as well as check with your insurance agent to make sure it is regarding your previous policy.
Generally speaking, auditors will request financial and employee information such as, but not limited to:
- Experience Rating Worksheet
- Tax Forms(W-2, 1099, 941, 944)
- Payroll records (as well as all sources of pay)
- Job Description of each of your employees
- Payments for services performed by subcontractors as well as independent contractors
- Certificates of Insurance from each subcontractor you hired
Once you have the requested forms, taking the time to organize them before the audit will tremendously help the auditing process. For example, try organizing all subcontractor forms together and all payroll forms together so you know where everything is as the auditor asks for them for review.
During The Audit
In some cases, the auditor will conduct a phone audit while others will conduct a physical audit. Physical audits involve the auditor meeting you or a trusted representative in person. If you do send a representative, it is important that they understand your business well, including operations, payroll, and finances.
Once you meet with the auditor, be sure to answer the California workers comp audit questions fully and thoroughly while not offering more information than is being asked.
During the audit, the auditor reviews many factors of your company to determine the workers' comp premium. One aspect of this includes your company’s rate of class codes. Your class codes are the industry classifications that your business falls into based on the business operations. Your auditor will thus make sure your business is properly classified and if they find it is not, they may change the classifications during the audit. If you have questions in the event of a re-classification, you can always ask the auditor or your insurance agent for further explanation.
Things to Know for Your Audit
As mentioned, the California workers' compensation audit questions will ask for lots of information regarding your business. For these questions, one important thing to understand is your company’s payroll. Payroll is one of the key components in determining your workers' comp premium as it is multiplied by the insurance carrier’s particular rate per class code and then divided by 100 to reach your accurate workers' comp premium amount.
It varies depending on the state but generally, payroll includes, but is not limited to, the following:
- Vacation, Holiday, Sick Pay
- Bonuses
- Overtime payments
- Commission
- Retirement or savings payments deducted from employees’ gross pay
- Payments to workers for something other than time worked
- Payment for tools that workers use on the job
- Payroll for employees of uninsured subcontractors
Payroll typically does not include tips, severance pay, discounts, reimbursement for company expenses, or uniform payments although it can often be confused with payroll. Another thing to keep in mind is your use of subcontractors and/or independent contractors, depending on how your business operates, as the California workers comp audit questions will ask about this.
For instance, if you are a contractor who hires a subcontractor to help with a job, you can be found liable for their employees’ injuries if they do not have their own workers' comp coverage. To this responsibility, it is important to obtain and keep records of certificates of workers comp insurance for each subcontractor you hire.
The auditor will look for these certificates and if you did not obtain one then that subcontractor’s workers comp coverage will be charged to your premium based on their own classification for that job, making your total premium more expensive. If you are not a contractor, you are not liable for injuries of employees of an independent contractor you worked with, as they are a separate, independent company from yours and are responsible for their own workers' comp coverage. However, there are some cases where you could be found liable so it is best to also obtain workers comp evidence of insurance from your independent contractors to avoid this liability.
Getting Prepared
In conclusion, although a workers' comp audit can seem overwhelming, being well-prepared and cooperative can make the process far more efficient and simpler. Asking any of your workers' comp audit questions directly to your auditor and to your workers' comp insurance agent is encouraged as it will help you better understand how your policy works. The right hard-working agent can truly help by following up throughout the year to make sure your payroll is aligned with what was originally projected before the audited policy started along with keeping the auditor sharp and accurate with their results.
Audits can be beneficial to you financially because if you do not comply with the audit, the auditor will issue an estimated audit that is usually an overestimate and could thus cost you more money in premium than if you were to complete the audit with your company’s accurate information. Sometimes insured’s find out that they overpaid for workers comp insurance throughout the year and are given back a premium credit. As you can see, it can be worth it in the end and contribute greatly to cutting the cost of your California workers' comp insurance premium. Contact a California insurance agent who specializes in workers comp with questions and for more tips on preparing for your workers' comp audit!
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