Audits are never fun. They bring to mind twitchy government officials poking through your papers and scrutinizing your business dealings with a magnifying lens trained to find fault wherever it may exist. And while workers compensation audits (hereon called WCA’s – not to be confused with a sporting organization, as much as it sounds like one) are no stroll in the park, they are slightly less nerve wracking. For one, WCA’s aren’t performed through the government, but by your company’s insurance provider… And a collective sigh of relief is heard across the globe.
Now that you know that you won’t have to deal with the annoyingly complex bureaucracy of the government, here’s what you have to know.
How it works:
In the beginning of time…ok, we won’t exactly go that far back. However, to fully understand the WCA, you’ll need to understand how your policy premium was determined. At the time of purchasing your workers’ compensation insurance policy, your provider estimated your workers’ exposure to workplace injury and risk. Your premiums were then estimated with this risk exposure in mind. So if your employees are slinging power tools instead of slinging compliments at networking events, your premiums are probably higher.
When your policy expires, your insurer will AUDIT (the key word of the hour) your records of the previous year to determine how much the compensation has changed, so that the final premium payment is proportionate to the actual compensation amount. Once a new premium is reached, you may have to pay the difference in price. These audits are usually conducted about 30-60 days after the policy term expires.
Like most things in life, it’s best to be as prepared as possible for your WCA. You don’t want to appear flustered or unprofessional when the auditor comes calling.
So how do you prepare for your WCA? No, worries, we have your back with the SEVEN ways you can prepare for your WCA.
1.) Ask your insurer about the information you’ll need to provide
Give the auditor what they need – and nothing more. If you’re one of those people who think being prepared is bringing everything including the kitchen sink, resist the urge. This is really a case of less is more! Therefore, when getting ready for your WCA, ONLY bring the actual information your insurer asks for. For this reason, it is important that before you start gathering your documents and records, you call your insurance provider and find out EXACTLY what you’ll need for the audit.
While we’ve included most of the information that auditors ask for below, you still are going to want to find out if your provider has any different requirements.
2.) Collect payroll records
The auditor is going to demand to see your payroll records, so make sure these are in perfect order before the actual audit. Most companies use a payroll company or software, so this task isn’t nearly as overwhelming as it sounds, but regardless if you do it on your own or through a company, records that are disorganized (employee times scribbled on the back of a napkin just won’t do) and incomplete will make your WCA a huge mess as well.
- Payroll journal and summary which includes all salaries, wages, commissions, overtime pay, and bonuses. It’s best to separate overtime pay by job classification.
- State unemployment reports
- Individual earnings records
- Federal tax reports
- Your check book
3.) Organize employee records
You’ll also need to show proof of how many workers you employ and the details of the work they do for you. Sorry, you can’t exclude the owner’s nephew just because he doesn’t really do much around the office. If they’re getting paid by you, they need to have a job description (now if office clown could be a real job title, you might be set!).
Have documents proving the following information available and ready for the auditor to review:
- The number of workers you employ
- The hours, days, and weeks each employee works throughout the year
- Detailed explanations of your business operation and each employee’s specific job within your company
- A breakdown of salary based on dollar amounts for employees who work under more than one classification code
4.) Assemble proof of all cash disbursements
Businesses make multiple payments throughout the year that are not on the regular payroll. Your auditor is going to want to see proof of these payments, such as payments you’ve made to subcontractors for materials and casual labor. Time to bring out the boxes of receipts…although we sincerely hope that this information is somehow more organized than that!
5.) Collect certificates of insurance
Next, your auditor will probably ask for certificates of insurance for all subcontractors and independent contractors. Make sure these certificates are current and that they show that workers’ compensation coverage is provided. In other words, pull out your rolodex and start emailing all your subcontractors for their certificates. As this probably won’t happen overnight (as is the case most times you are depending on someone else to provide the information), make sure to leave yourself plenty of time before the audit to collect this information.
6.) Gather all of your information
Now that you’ve finished preparing all of the documents and records you’ll need for the audit, collect everything in one location, such as a file folder or manila envelope. Extra Credit goes for color coding by information type. And while you don’t need to start bringing out the highlighters and glitter glue, presenting the information in an organized, easy-to-process manner will allow you to be ready for the process to begin as soon as the auditor arrives. Besides ensuring a smooth audit, it never hurt that you made the life of your auditor, who is on a strict time schedule, a little bit easier, and s/he will therefore hopefully be more inclined to look favorably at you and your company.
7.) During the audit
Here are a few final things to remember once the audit has already begun:
- Be available. It’s best if the business owner is on-hand to answer all questions. You know your business best, and this audit can cost your company hundreds of thousands of dollars. Clear your schedule and give the audit the attention it deserves.
- Only provide requested information. Like the information you gathered, hold back from spilling the beans when speaking to the auditor. If you’re the type who needs to fill the silence, speak about a neutral subject and DON’T volunteer any information; only answer what you are asked.
- Be careful to provide accurate information. It is in your own best interest to provide information that is both accurate and detailed. If the auditor is forced to make assumptions because of insufficient information, they are likely to make those assumptions in favor of the insurance company – and not in favor of your business.
- Ask about disputes. Be sure to find out how and when you can dispute the premium determination before the auditor leaves.
Still feeling panicky? Mod Watch is always here to help you navigate your workers’ insurance needs and safety compliance. Call us today to find out how.
Breathing easy because your WCA is out of the way? Don’t breathe that sigh of relief just yet….while you’ve gotten over the hard part, once you receive your audit report, it’s important to know what the report means, and most importantly, what it will mean for your insurance premiums. Need to know how to decode the audit report? Stay tuned for our next blog on reviewing workers’ comp audits!
With over 10 years of experience in managing workers’ comp claims Tehila understands well the struggles involved. Joining Modwatch gave her the opportunity to use her passion of reducing work related injuries, getting employees back to work, and helping reduce insurance premiums to help others.