Workers’ Comp Audit Checklist: A Step-by-Step Guide to Preparing for Your Workers’ Compensation Audit

1. Review Your Workers’ Compensation Insurance Policy

Before the audit begins, take time to review your workers’ compensation policy to ensure all the details are correct. This includes:

• Coverage Details: Make sure the policy covers all employees and business activities.
• Classification Codes: Ensure that all job classifications assigned to employees are accurate based on the work they perform.
• Premium Basis: Understand how your premiums are calculated, including payroll calculations, risk classifications, and previous claims.

2. Gather Employee Payroll Records

Your payroll is one of the primary factors used to calculate your workers’ compensation premiums. The audit will likely involve reviewing your payroll to verify that it matches what you reported. Be sure to:

• Provide Payroll Reports: Have up-to-date payroll records ready, including total payroll and the number of employees.
• Breakdown of Payroll by Job Classification: Ensure payroll is separated by job classifications as different types of work are subject to different rates.
• Overtime and Bonuses: Include any overtime pay, bonuses, or commissions, as these are often included in the payroll for premium calculation.

3. Document Subcontractor and Independent Contractor Information

If your business hires subcontractors or independent contractors, ensure that you have the proper documentation for them. Depending on your state’s rules, you may need to provide evidence that these individuals are excluded from your workers’ compensation policy, as they are not considered your employees. Be prepared with:

• Subcontractor Certificates of Insurance: Ensure subcontractors have their own workers’ compensation coverage and provide proof if requested.
• Contractor Class Codes: If subcontractors perform certain work in high-risk areas, their classification codes may need to be reported.

4. Confirm Employee Status

Make sure the list of employees you submit for the audit is current. If you have temporary, seasonal, or part-time employees, make sure their information is included accurately.

• Full-Time vs. Part-Time: Different classifications may apply based on employment status.
• Temporary Workers: Some workers’ compensation policies cover temporary employees, while others may not, depending on how they are classified.
• Owner/Officer Status: In some cases, business owners or officers can exclude themselves from coverage. Verify if this applies to your situation.

5. Prepare Your Worksite and Safety Records

Your safety practices and risk mitigation efforts may affect your workers’ compensation premiums. The audit may involve reviewing your workplace safety records and injury reports. Be prepared to provide:

• Accident and Injury Reports: Have records of any workplace injuries or accidents and how they were handled.
• Safety Programs: Provide documentation of any safety training programs, certifications, or safety measures in place to minimize risk.
• Workers’ Compensation Claims: Ensure that any open claims or closed claims are accurately reported.

6. Ensure Accuracy in Job Descriptions

The job classifications you report are crucial in determining your premiums. Accurate job descriptions for each employee will help prevent any discrepancies during the audit. Ensure that:

• Job Roles and Duties Are Clearly Defined: Each job description should clearly outline the tasks and risk factors associated with each role.
• Job Class Codes Are Correct: Double-check that the employees are assigned the correct class codes based on the work they do. If you have employees performing multiple tasks, make sure the classification reflects their primary duties.

7. Organize Financial Statements and Tax Documents

Your business’s financial statements and tax documents are often used during the audit process to verify payroll and other compensation information. Ensure that the following documents are ready for review:

• Financial Statements: Provide your most recent balance sheet, profit and loss statements, and any other relevant financial documents.
• IRS Forms: Prepare any relevant tax forms such as IRS 941, 1099s, or W-2s for verification of employee and contractor compensation.

8. Review Previous Audits and Adjustments

If you’ve undergone previous workers’ compensation audits, review the findings and any adjustments made in prior audits. This will give you insight into potential issues or discrepancies that may come up again.

• Prior Audit Reports: If applicable, review your previous audit reports to address any errors or issues that might recur.
• Past Premium Adjustments: If premiums were adjusted in previous audits, confirm that those adjustments were correctly applied.

9. Contact Your Insurance Agent

If you have any doubts or concerns about the process, it’s always a good idea to consult with your workers’ compensation insurance agent. They can clarify any questions you have regarding the audit, documentation required, or areas of potential confusion.

10. Be Ready for an Audit Follow-Up

After the audit, your insurance carrier will provide an audit report outlining any adjustments to your workers’ comp premiums. Be prepared to:

• Review the Report Carefully: Check for any discrepancies, errors, or changes in your classification codes or payroll calculations.
• Address Any Discrepancies: If you find any errors or discrepancies in the audit report, reach out to your insurance provider to address them before finalizing the premium payment.
• Appeal if Necessary: If you disagree with the audit’s findings or adjustments, ask for clarification or dispute the results with your insurance provider.

Conclusion

A workers’ comp audit is an essential part of ensuring that your insurance premiums are accurately calculated and in compliance with regulations. By preparing thoroughly using this checklist, you can minimize stress, avoid surprises, and ensure that your business is properly covered.