INSURANCE AUDIT (BE PREPARED)
Workers Comp Insurance Audit
If you are an employer, you know that you are required to have workers’ compensation insurance coverage; however, what you may not know is that your policy could be subject to an audit.
These audits are done to determine whether or not the class codes and payroll that was quoted at the start of the coverage accurately reflect the scope of work that is being done and the payroll throughout the period of the policy.
After the policy expires or is cancelled, the insurance company audits the named insured’s payroll records, determines the actual payrolls, and calculates the final premium. If the earned premium is less than the deposit premium, it refunds the excess to the named insured. If the earned premium exceeds the deposit, the named insured pays the insurance company the difference.
These audits also ensure that any sub-contractors have their own policy in place. A workers comp insurance audit is done at the discretion of your insurance provider and can take place in person, over the phone, or via mail.
Types Of Workers Compensation Audits
There are several types of workers’ compensation insurance audits. Below, you’ll find an overview of some of the most commonly performed audits.
Estimated Premium Audit. The premium of a workers’ compensation policy is determined by calculating a specific rate multiplied by your payroll, which is then divided by 100. For instance, if your payroll is $200,000 and the rate for the insurance is 10 cents, the premium for your policy would be determined by the following calculation: 200,000 x .10 / 100, which would be equal to $200.
The premium you are required to pay at the start of your policy is provisional. In other words, it is an estimate, as it is based on the projected payroll for the upcoming year. Once your policy expires, your insurance provider can conduct a workers comp insurance audit to find out what your actual payrolls for the year were and will adjust your premiums, as needed. If it is found that your actual payroll is higher than your estimated payroll, you could have to pay an additional premium to cover the difference. If your actual payroll is lower than what was projected, you could receive a refund.
Obligations of Contract. The majority of workers compensation insurance policies have a clause that highlights workers comp insurance audits will take place. These clauses state that an employer is required to let the insurance provider audit the workers’ comp policy at any time, three years post policy expiration. The insurance provider has the right to investigate any records that may pertain to the policy, including tax returns, records related to payroll, and accounting information.
These insurance policies also include a provision that allows the insurance provider to inspect the workplace of the employer at any time during the duration of the policy. During an inspection, the insurance provider investigates how insurable your business is and can gather information related to your payroll.
How Audits are Performed
As mentioned, there are several ways in which an insurance company can audit a workers compensation policy. The types of audits can vary from insurance provider to insurance provider, and from state to state. Below is an explanation of the different ways that audits can be performed:
- Mail – A mail audit is the easiest type of audit. This process is usually reserved for small operations that don’t employ a lot of workers and that do not generate a high premium.
- Telephone – With audits that are performed via telephone, the insurance company will typically send you a form that needs to be completed and returned. Once the company receives the completed form, they will schedule a phone call with one of their auditors so that you can discuss the information you input on the form.
- Preliminary – A preliminary audit is conducted when a policy is first written. This type of audit will usually be performed on the site of your establishment. It ensures that accurate payrolls and classifications are being used for the insurance policy.
- Field – A field audit is performed on-site. During this audit, the insurance company will gather pertinent information that applies to the policy, such as payroll information. The gathered information will be used to determine the amount of your final premium.
- Interim – This type of audit can be conducted if there have been any chances to your business; for example, if you started a new organization or started employing larger numbers of people.
- Test – A test audit is performed by an authority from your state’s workers compensation bureau. It verifies the information that was obtained by the insurance company via an audit they performed.
Workers Comp Insurance Audit – The Bottom Line
We hope this article on workers comp insurance audit has been informative. Be aware that your workers compensation insurer will most likely initiate the audit process shortly after your workers comp policy expires.
Further Reading On Worker’s Comp Insurance
- Workers Compensation Insurance
- How To Reduce Workers Compensation Premiums
- How To Understand Your Workers Compensation Experience Modification Factor
- How Much Does Workers Comp Cost In California?
- How Much Does Workers Comp Cost In Texas?
- Texas Workers Compensation Laws For Employers
- Uninsured Subcontractors Workers Compensation
- Workers Comp Insurance Audit
- Workers Compensation Classification Codes
- Workers Compensation Code 8810
- Workers Compensation For Restaurants
Different States Workers Comp Insurance Audit
If you are looking for state specific Workers Comp Insurance Audit quotes, costs and information: