Preparing for the Workers' Comp Auditor

Workers' Comp Insurance

By: James Morgan, Master Certified Workers' Comp Advisor (MWCA), Towne Insurance 

Don't Disrupt Your Work Flow

Workers’ compensation costs can be 30 to 50 percent of an employer’s insurance costs. When your insurance policy first goes into effect, your premium cost is based on assigned classifications, estimated payrolls (referred to as remuneration), and an experience modification factor. At the policy’s expiration, the insurance company conducts a payroll audit and converts estimated payrolls into actual payrolls. It then assigns those payrolls to a classification. Is that classification correct?

To simplify the audit process, it was designed so all mistakes or missing information default in favor of the insurance company. By preparing a complete and thorough audit package when your policy starts, you can work towards an accurate, mistake-free, time and money-saving audit. The tips below will help you prepare for the auditor’s visit.

Getting Ready for the Auditor:
  1. Schedule the audit sometime after lunch – mid to late afternoon – preferably Friday.
  2. Treat the auditor as a welcome guest and provide the auditor with a quiet, well-lit space to work.
  3. Assign a knowledgeable, friendly staff member to work with the auditor and escort the auditor on a tour of your location if requested.
  4. Answer the auditor’s specific questions but don’t offer additional information. A written “basic” description of your business or operations is a valuable tool for limiting the scope and number of questions asked.
  5. Telling the auditor you will send additional info as needed is the proper response when you don’t know the answer. Do not guess at any answer!
Preparing Records for the Auditor:
  1. Have a prepared summary showing the total payroll summarized by classification code.
  2. Subtract excluded remuneration: officers’ exemptions; overtime; rewards for invention or discovery; severance; and 12 or 13 other excluded remuneration categories.
  3. Verify your math is accurate and balance to payroll records and to your prepared summary sheet.
  4. Review evidence (called certificates) of insurance from sub-contractors separating labor and hard costs of supplies. Hard costs are not to be included for workers’ compensation.
  5. Copy and secure certificates of insurance for all sub-contractors, being sure their policy dates cover periods they worked for you.
  6. Hand the completed package to the auditor with workers’ compensation on top, your actual payroll report/run next, then your quarterly payroll reports, sub and sub certificate information.
  7. Ask the auditor to leave you a copy of his or her audit work­sheet so you have it on hand to refer to if questions arise. This is an absolute – you need a copy!
  8. Ask the auditor to explain his or her results/summary before they leave.
After the Audit:
  1. Get a copy of the final audit billing.
  2. Verify deposit premiums and applicable credits and dis­counts, and confirm correct experience mod factor.
  3. If billing matches summary page, close case; if not, review auditor’s worksheet for discrepancies, negotiate to positive closure.
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