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3 Ways to Prepare for a Workers’ Comp Audit


Workers’ comp audits are performed to ensure that the premiums employers pay for workers’ comp insurance accurately reflect their respective risks. Most insurers check to make sure that employers and employees are properly classified and that the payrolls used for rating purposes are timely and accurate. If wrong classifications are detected, then the auditors ascertain whether the employer is paying too much or too little. Many countries obligate insurers to audit all the insured worker’s compensation policies whose annual premium exceeds a set threshold. State insurance depts. perform periodic audits and checks to make sure insurers are conducting the required audits.

Gathering Required Records

I. Inquire on The Documentation that you need.

When it comes to audits, it’s critical that you provide the information that is required promptly. Never volunteer information that isn’t required or requested. The best way of going about this is to ask the auditor which documents he or she will need then you avail them. Several payroll records will be required of you. First, is the payroll journal and summary including salaries/ commissions/ overtime pay, and bonuses. The others are state unemployment reports, individual earnings records, federal tax reports, 941 reports, your checkbook, and all overtime payments.

II. Compile Your Employee Records.

One of the critical information that the auditors will need is employee records. These will include the number of employees in your firm, the hours, days and weeks worked during the year, and the detailed breakdown of job roles for each worker. If an employee works in two or more classification code for job clusters, then you must give a breakdown based on the total amounts. If a worker left, then you need to keep proper records of each employee for the stipulated time after they are gone.

III. Find Your Cash Disbursements/Certificate of Insurance.

You need to present payments of any sub/independent contractors, materials as well as casual labor. While at it you also need to gather your certificates of insurance. Some states charge workers’ compensation premiums for sub/independent contractors. Therefore, you need to have certificates of insurance for each of your subcontractor you used during the policy period. The certificates should stipulate that workers’ compensation insurance is being remitted. There are subcontractors who take general liability cover without taking workers’ compensation for their employees. There are states that allow sole proprietors to operate without the workers’ compensation requirement.

Setting Up for the Workers’ Comp Audit

I. Determine Your Type Of Workers’ Comp Audit.

When it comes to workers’ comp audits, there are two primary audits. These are, the voluntary audit and the physical audit. Physical audits tend to be more intense. The auditor will contact you by phone/mail and schedule an appointment. The auditor has to contact you within 60 days of the expiration of your policy. You must provide the auditor with documents to scour through for a max of thirty days once assigned your audit. During voluntary audits, the insurer will simply send you the forms on mail after which you fill and send back.

II. Assign A Primary Contact.

You will need to designate an employee or staffer who will be the primary contact for the auditor. The person must be familiar with both payroll records and the entire business processes. They should also be familiar with audit procedures, and any previous audits that were done in the firm. The primary contact should be the one to choose a space for the auditor. As much as possible try and get the auditor to work from your premises. This will facilitate the exchange of documents between the workers and the auditor during the processes.

III. Review The Original Policy.

Before the auditor shows up, take your time to review the original policy and ascertain how they calculated the initial policy premiums. There are several things to keep in mind as you go about this. First, you are charged rate for every hundred dollars. Secondly, the rate should be based on the type of work done? Thirdly, the classification codes which vary depending on the levels of risks. Some jobs are assigned their own unique classification codes. Most often the workers’ experience is used to modify the amount based on your prior workers’ compensation history.

Handling the Audit

I. Reach Out To The Auditor.

Workers’ compensation audit can be stressful given that it calls for lots of disclosures. That’s why you will need to build a strong relationship with the auditor. This will help you handle differences and disagreements with cordiality. Provide all the support and comfort that is needed for the auditor. Remember the accuracy of the process depends on his ability to capture all the facts and pieces of evidence involved prudently. Whenever you feel the auditor is overstepping their bounds, raise the issue upfront. While at it be respectful yet firm and resolute.

II. Review the Auditor’s Worksheets.

Once the auditor has finished up their work, take a careful review of their worksheets. Sometimes auditors make inaccurate entries that will hurt you while benefiting the insurance firm. Never sign off an audit until you are satisfied with the data, policies, and evidence captured in it. Always compare the audit to the original policy. That’s because any increase in premium should be legitimate. Keep a closer look at the classification codes, experience modification factor, and the schedule credit/debit.

III. Meet With An Insurance Attorney.

In case of differences, disagreements, disputes, and un-matching figures, then contact an experienced insurance attorney. Avail to the attorney your original policy and the auditor’s worksheets. The attorney will then decide whether you have grounds for challenging the audit. The easiest way to find a good insurance lawyer is to visit the American Bar Association’s website or to ask around for referrals. If the attorney gives you grounds for challenging the audit you can then formally dispute the audit.


Most often when the proper steps are followed, audits can go on pretty well without any disputes. In case of inaccuracies, then be careful regarding statutes of limitation that is if you have to challenge the audit.