5 ways to prepare for your next workers compensation insurance audit

By Higginbotham on August 07 , 2014

Workers' comp audit

Preparing for a workers’ compensation premium audit can be stressful for Texas business owners. It’s inconvenient, disruptive and it takes a lot of work to get the paperwork together. Once the audit is complete, the last thing you need is the added stress of seeing your workers’ compensation premiums going up for the next policy year.

There are several reasons why this usually happens:

  • The employer’s projection of payroll for the upcoming year was off.

  • Nobody monitored the payroll projection during the policy year to make sure it was accurate.

  • The employer didn’t understand the perils of using contractors that don’t carry workers’ compensation coverage.

  • The employer didn’t fully understand the audit process and how to work effectively with the auditor.

Follow these five tips to make sure you don’t get caught in those costly traps:

  1. Be as accurate as possible with payroll projections. Many business owners quickly jot down their best guess for the coming year’s payroll and move on. But if you have highly-rated workers’ compensation class codes, you could be hit especially hard given the huge impact those rates can have on your premiums. Take time to carefully project what your payroll will be at the end of the year for each of the class codes that apply to your operations.

  2. Monitor your projections throughout the policy year. This is an easy fix, but it too often falls between the cracks. Set up quarterly reviews with your insurance agent to regularly compare your projections with your actual payroll during the year. This will give you a better handle on what to expect when the audit comes around and will also allow you time to make any adjustments.

  3. Understand the impact of using contractors without workers’ compensation coverage. If you provide workers’ compensation coverage to your employees, you’ll have to provide the same coverage to contractors who work onsite if they don’t have their own workers’ compensation policies. As an example, if an auditor finds that you had your building’s roof replaced, he can ask to see the Certificate of Insurance showing that the roofers had workers’ compensation coverage through their employer. If you’re unable to produce the Certificate, the auditor can include the roofer's compensation on your audit. You don’t want that to happen since the roofers work comp class code has one of the highest rates.

  4. Be directly involved in the audit process. Before the audit, decide who will be the primary contact person for the auditor. This person should be very familiar with all employees’ job functions and class codes, as well as the payroll records. Without a knowledgeable person available to assist, the auditor will have to make educated guesses – and those guesses likely won’t be in your favor.

  5. Make sure all public information about your company is accurate. The auditor will likely check your company website and other online information about your business before the audit, so make sure it’s all accurate and up to date. You don’t want the auditor to make decisions that increase your premiums based on misleading or out-of-date information.

A workers’ compensation audit can sometimes cause dramatic changes in your premiums, but changes should never be an unexpected surprise at the end of the audit. Invest the time and effort up-front to be fully prepared for the audit and throughout the year. It just might save you some money on next year’s premiums.

For more information about preparing for a workers compensation insurance audit, contact the business insurance experts at Higginbotham.


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Tags: Business Insurance


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