Insurance Program Managers Group

What You Need to Know About Workers’ Compensation Audits

Posted by Nathan Kaprinay on Nov 29, 2018 11:16:38 AM

What You Need to Know About Workers’ Compensation Audits

The word “audit” is rarely associated with something positive. So, it’s no surprise that many might hear about a workers’ compensation audit and react with dread.

 Take a deep breath — we’re here to help. 

Here’s what you need to know about workers’ compensation audits and how you can prepare your organization for your next one.

What is a Workers’ Compensation Audit?

A workers’ compensation audit is a deep look at your organization’s workers’ compensation policy to determine the accuracy of your previously estimated policy premium. The vast majority of workers' compensation policies, including the standard NCCI form, contain a clause that includes audits.

These audits are conducted to verify what the appropriate final premium to be charged should be, since the original quote was based on an estimated payroll.

Audits almost always take place after each policy period ends or expires, and once the audit has been completed, your insurance will send a statement to the policy holder which notes if any additional premium is owed by the insured or a return premium is due.

Types of Audits

There are two kinds of workers' compensation policy audits you need to be familiar with: a physical and a voluntary audit. Which one your organization faces is determined by the nature of your business and the size of your premium.

In general, more complicated businesses or those with larger premium sizes require a physical audit. 

Here’s what you need to know: 

  • Physical Audit – This type of audit is performed at your place of business within 60 days after the expiration of your policy and is usually completed within a 30-day time period once assigned.
  • Voluntary Audit - This is a form mailed by your insurance company within 30 days after the expiration of your insurance policy. This form will usually show your policy’s classifications and request your actual payroll exposures for each class. While these forms can be described as basic, they may be confusing for someone who has never completed one before and may request you send back related tax reports or documents. 

Tips for Preparing for a Workers' Compensation Audit

How to prepare for a workers' compensation audit

So how can you make the auditing process runs as smoothly as possible?

For a voluntary audit, be sure to fill out and complete any requested forms as soon as possible.  If you have any questions about the form, reach out to your insurance provider or any legal/HR experts. You don’t want to send in a form with errors that could cause you additional headaches or premium increases down the road. 

In the case of a physical audit, it’s a good idea to engage your auditor throughout the process and review any worksheets they prepare.

You should also stick to the following rules:

  • Never sign off on incomplete audit worksheet.
  • Always ask questions if things seem unclear.
  • Make a copy of the auditor prepared audit worksheet. Auditors are human and can make mistakes — you want to be sure that the worksheet doesn’t overly favor the insurance company. 

Remember, audits are a contractual obligation within the workers’ compensation insurance policy. It’s in your best interest to have some understanding of workers’ compensation class codes, subcontractor payments and your payroll prior to an audit.  

At IPMG, our Workers' Compensation Placement Services have been in the business for long enough that we've seen it all. If you need any help when it comes to workers’ compensation audits or claims, feel free to contact us and we’ll be happy to serve as a resource for your organization.

Tags: Workers' compensation