When a Workers’ Compensation policy is initially underwritten, the policy premium is based on the firm’s estimated exposure for the upcoming period. At the end of the policy period, an annual Workers’ Comp premium audit determines what the accurate cost for that period should have been. There may be differences between the estimated premium established at the onset of the policy period and the actual premiums, which is why the audit process is critical. The audit will determine if any additional premium is owed or a credit should be issued to the employer.
Before the auditor arrives, make sure the employer designates a primary contact person for him or her. This contact person should be someone who is very familiar with the work done by all departments and all employees, as well as someone familiar with the payroll records the auditor will be reviewing. Review the original policy to see how the initial estimated premium was calculated. Look at the classification codes, rates, and payrolls used to compute the initial premiums – the auditor will be starting from this as well, but will not necessarily be limited to using only the classifications listed on the policy.
In addition, in the preparation for a Workers’ Compensation audit, an employer should have the following documents available if requested:
- Accounting ledger.
- Tax forms, particularly form 941 and 944, Employers Federal Tax Return (quarterly and annual, respectively).
- Records of cash disbursements.
- Payments for services provided by independent contractors. The auditor will need to verify that these workers are not employees.
- Payments for services provided by subcontractors
- Certificate of insurance for each subcontractor and all independent contractors hired.
- W-2 and 1099 forms.
- Job description for each worker; make sure it accurately describes the worker’s duties.
- Description of business operations.
- Payroll records for the term of the policy. The auditor will need to verify all sources of pay provided to each worker (salary, bonuses etc.). Payroll includes gross salaries and wages, including retroactive salaries and wages; commissions – total commissions received by a worker and any draws against commissions; bonuses, including stock bonus plans, vacation, holiday and sick pay; overtime pay – in all but a few states, remuneration includes overtime calculated at the straight time rate; payments made by the employer that would otherwise have been withheld from employees’ pay as required by law for Social Security, Medicare or a pension plan; and payment to workers on a basis other than time worked (piecework, profit sharing or incentive plans); among other items.
- The company’s experience rating worksheet.
About Caitlin Morgan
Caitlin Morgan specializes in providing Workers’ Compensation solutions. For more information about our programs, flexible payment terms and strong risk management services to help mitigate accidents and injuries and control the cost of Workers’ Comp, contact us at 877.226.1027.