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Just say the words “Work Comp audit” and watch any business person’s stress level rise.  Maybe the industry should replace the word “audit” with the phrase, “verify and validate.”  That’s really what the auditor (whether company representative or independent personnel) is trying to do.  It’s simply a process of comparing your estimated labor payments and classifications to your actual payments and classes.  If your actual labor expenditures exceed your estimate, you may owe the insurance company more premium; if the actual is less than your estimate, the insurance company may owe you.  The calculation between the estimate and actual will generate a document  – Final Premium Audit Statement –  which will be mailed to the business at the conclusion of the audit process.  This statement tells the business owner if they owe the company, or if the company owes them.

Keep in mind that this “audit” is usually conducted between two people who have never met each other, and one (auditor) is trying very quickly to get a snapshot understanding of an established company’s business profile, depth, scope of work, and size of operation, while the other (business owner) is reluctant to provide any data at all to this person they just met.  Oh, and did I mention there might be a thorough review of payroll records, payment data, and independent contractor payments?  Who doesn’t like a stranger digging through their financial records?  Will the sensitive financial  information be secure?  And what about identity theft? Security is a real concern and personnel data should be protected.  No wonder it invokes stress!

Audits don’t have to be stressful.  Here are some pointers to a stress-free less stressful audit:

  1. Accept it. Audits are part of the policy.  If you purchase Work Comp coverage, the company has the right to review the records in support of those labor classifications covered in the policy.
  2. Be prepared. Audits are conducted within a month of the conclusion of your policy term, so there’s no need to be surprised when you receive your audit request.  Review your policy for the effective dates, the payroll class codes covered by the policy, and the remuneration (payments for labor workers) for each class code.  (These remunerations by class code are the estimates mentioned in the first paragraph.)
  3. Schedule a time and place that is convenient for you, usually at your place of business. Auditors try to manage multiple appointments in one day, so if the time they suggest isn’t convenient, simply offer an alternate time.  If your office isn’t available, you could arrange to meet at a library, restaurant, coffee shop, or other public place.
  4. Set aside 30 minutes. That’s right.  If you’re prepared, most audits can be concluded within a half hour.  The less prepared you are, the longer the audit.
  5. Gather your documents ahead of time and make copies. The audit letter or phone call will detail the documents needed.  If you file payroll taxes, you will need your quarterly reports and annual W2 summary.  You will also need any information in support of 1099 wages paid.  If you have neither, then a summary of your check register or bank statements will be needed to identify all payments made for each labor classification.  Keep in mind that the auditor is verifying and validating all payments made to laborers during the policy term.   (These payments will be organized into the corresponding class codes on your policy, and each category will be totaled.)
  6. Request Certificates of Liability Insurance (COIs) throughout the year from any sub-contractors you hire. Asking for these copies along the way keeps you from scrambling at the last minute.  Keep these COIs in a file and submit them to the auditor.  Any payments made to sub-contractors who already have their own Work Comp policy coverage will be deleted from the category totals in #5 above.
  7. Never ever, ever ignore an audit. The state of Georgia allows insurance companies to assess a 3X estimate of remuneration to businesses who are non-compliant with audits.  This means that a $100,000 estimated payroll could soar to $300,000 assumed actual, if you don’t respond to an audit in a timely fashion (usually 30 days).   Non-compliance can include anything that denies the auditor the opportunity to complete the audit:  no documentation, failure to appear at the pre-arranged meeting, withholding information, etc. 
  8. That’s it. You’ve completed your audit.  Hopefully, if your actual totals are very similar to your estimates, your Final Premium Audit Statement will be $0 – nothing owed or refunded.  Your policy will be renewed with few changes to class codes or remuneration.  If you’ve hired new classes of workers, the renewal policy will include these new class codes.

I tell my customers to be informed consumers.  Know your policy!  Compare the policy to your actual business activity throughout the year.  If the insurance policy estimate of your annual “payroll” is around $100,000 but business is picking up and you know the actual annual total will be more like $150,000 then put some money aside for the audit.  Call us and we’ll help you calculate the approximate premium increase. 

With a little knowledge, adequate preparation, and a relaxed attitude your next audit will be a breeze!  And you might actually find that you enjoy it wasn’t so bad, after all. 


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