Audit FAQ’s

The first thing you need to know is why an audit is being requested. Your workers compensation premium is ultimately determined by your exposures. The two basic exposure types for a workers compensation policy are payroll (remuneration) and total cost of uninsured contractors. When your policy is first set up your policy premium is based on an estimated exposure. This estimate should come from you after you’ve been informed how an auditable policy works, not made up or guessed at by your insurance agent. Your estimate should have been your best projection for the coming policy period.

Shortly after your policy expires, your actual exposure during the policy period will be determined by the audit. After the audit of your workers compensation policy is completed by your insurance carrier they will prepare and send to you a final audit statement. This statement will indicate any additional premium you owe or any credit you will receive due to the payroll adjustment as determined by the auditor. You should receive the audit billing statement usually within three months after the end of your workers compensation policy period.

So what is the auditor really looking for? The answer is payroll.  Payroll, is defined as a workers compensation term, which includes payments to others as uninsured contractors.

Records you need to have available

When preparing for your workers compensation audit you need to make available to the auditor only those items they ask for. Don’t give them or volunteer more information than they ask for. Remember, the quicker an auditor can finish his job and move onto another audit, the better it is for you and for them. Here’s some of the items they may need to do their job:

Payroll Records to include:

• Payroll Journal and Summary
• Federal Tax Reports – 941’s that cover the audit period
• State Unemployment Reports and Individual Earnings Records
• All Overtime Payments Shown Individually

Employee Records

• Include a detailed explanation of the job duties of each employee
• Include Number of Employees
• Hours, Days or Weeks Worked Annually

Cash Disbursements showing:

• Payments to subcontractors
• Materials
• Casual labor

Certificates of Insurance

• For All Subcontractors
• For All Independent Contractors
• A detailed description of your business operations

Helpful Hints and Tips

When preparing for your audit keep these helpful hints in mind. They will save you time and cut down on errors the auditor may make.

1. Separate any overtime paid to your employees. Summarize the overtime by job classification as you list them on your payroll records.
2. Make sure you have current certificates of insurance for each of the subcontractors that you used during the policy period. Also make sure the certificates show workers compensation coverage is being provided. You’d be surprised how many small contractors have general liability coverage but no workers compensation coverage. Certificates of insurance must cover the period when the subcontractor worked for you. Be aware, this may require certificates covering different policy terms for the subcontractor.
3. In some circumstances a single employee’s payroll may be divided over different class codes unless the employee works in a clerical or sales position. Proper records must be kept in dollar amounts, not percentages, that reflect work actually performed before a breakdown can be applied. This is called Payroll Separation. Without adequate records, the entire payroll for the employee must be placed in the highest rated classification and payroll separation can not be used.

Simplify the Auditors job. The auditor is on a very strict time schedule. Every time an appointment is missed or has to be postponed it creates havoc in their life. So if a physical audit is being completed you want to do everything you can to make sure the auditors job goes smoothly. Here’s some suggestions:

1. Be prepared. Do not blow the auditor off and make them have to reschedule. A happy auditor leads to a good audit!
2. Have all the information the auditor requested organized and ready for use. Complete and accurate records kept well organized will make the audit process easier. The auditor can quickly find what they need and will require less questions and/or clarifications.
3. Answer basic questions about your business and records. The owner of the business should be available to meet with the auditor to answer questions and review the audit. If the owner is not available it should be someone with complete knowledge of the business. Do not just dump this job off on your bookkeeper or a lower level manager. Correct information exchange with the auditor is critical to an accurate audit. Again, just answer what you are asked.
4. Do not volunteer information. Stick to answering the questions the auditor asks. No more, No less.
5. Keep it simple. Do not ask the auditor questions. Remember they are not there to help you. They want to get their job done and get out.

A word of caution. Many auditors prefer to just gather data then take it home or to the office and finish it up. This is never a good process. You should always have the chance to review the auditors work before they

leave your office so you are aware of how they classed your employees and what the potential impact the audit will have on your business. You will be asked to sign the auditor’s worksheet before they leave. You should never sign an incomplete worksheet. You should always ask for and keep a copy for your files.

Every Workers’ Compensation policy is subject to an audit. However, having a pay-as-you-go policy can help minimize the impact of a premium audit because premium is based on actual payroll and not estimated payroll.

You can request a payment plan for your balance due by emailing [email protected].

If your policy is with Travelers Insurance, CoverEases’ E-COMP program will deduct these funds from the same account that we have used to bill your premium. You will receive a notice 2 days prior to the withdrawal.

If your policy is with any other insurance carrier, you will receive an invoice and payment instructions directly from the carrier.

Your insurance carrier estimated your audit because they could not reach you for additional information. Email [email protected] and we will assist you with getting your audit revised.

We are happy to answer any questions related to your audit, email [email protected] and you will receive a response within 1 business day.

You can email [email protected] and we can assist you with disputing your audit findings.

There are a number of reasons why an additional amount may be due:

• Taxes and Fees were under collected because payroll was lower than estimated.  Some taxes and fees are a percentage of your payroll, and some are fixed amounts.  If actual payroll varies greatly from your original estimate, then some of the fixed fees will not calculate to the exact amount.  For that reason, it’s common that a small amount may be due at audit.
• Employees were reclassified from one class code to another based on their job functions
• There were unreported wages that were included in the audit (some possible wage inclusions are contract labor, included officers, value of lodging)
• A Waiver of Subrogation was added mid-term
• Your experience modifier changed mid-year and the change was retroactive to your policy start date
• Your policy is subject to a minimum premium that wasn’t met
• Your policy was cancelled mid-term and a short rate penalty applies or taxes and fees were not fully collected

Here are a few things you need to know about the audit dispute process. Keep in mind these are only provided to you as a guide. The exact process may differ depending on your insurance carrier or workers compensation providers’ specific audit dispute requirements.

How can you tell if you need to file a workers compensation audit dispute? Here’s a few things to look for:

• Your audit clearly includes mistakes made by the auditor or insurance company?
• The payroll numbers used on your audit do not match those you provided the auditor for the policy period being audited.
• You received a significant audit bill but any increase in payroll does not seem to justify such a large additional premium bill.
• Your workers compensation job classifications were changed by the auditor or insurance company.
• Your experience modification factor is different than the one used on your policy.
• The auditor has improperly classified you and your employees.
• You are a contractor who performs different types of work or has crews who fall into different job classifications and the auditor did not allow you to use payroll separation.
• You have been charged for uninsured subcontractors when you have certificates that show they had coverage.
• Your insurance company removed or changed policy credits on your audit billing statement.
• You did not receive copies of the auditors’ worksheets.
• The auditor did not complete your audit while on site.

What you need to do to file a work comp audit dispute with your workers compensation provider:

Filing a formal work comp audit dispute will accomplish this:

• It will put on hold any collection procedures for the premium in dispute.
• It will put on hold any endorsements or changes to your current year’s policy until the dispute is settled.
• How to file a formal workers compensation audit dispute;
  • You must provide to your insurance carrier a WRITTEN detailed explanation of why you believe your bill is incorrect.
  • You must provide to your insurance carrier a WRITTEN detailed estimate of what the correct premium should be.
  • You will be asked to pay any undisputed portions of the premium you owe by the due date on the original audit bill.

The formal workers compensation audit dispute request must be submitted to the insurance carrier in writing along with all paperwork supporting your belief. If this process is not followed the insurance carrier may continue all collection procedures against you which may include turning your account over to a collection agency. Do they really do that? Yes they do.

Here’s a few things to keep in mind if you feel your audit is incorrect:

Do not wait until the last minute to respond to your audit.

• The worst thing you can do is procrastinate. Don’t wait until your account has been turned over to a collection agency! It just makes negotiating with your insurance carrier impossible.

Be proactive at correcting your audit.

• Remember, mistakes occur in a high percentage of audits. Insurance carriers know that. Be proactive at correcting those errors!

Follow the rules established by your insurance carrier for filing a workers compensation audit dispute.

• Taking short cuts will not work if you are trying to correct a work comp audit. Mistakes made in following the work comp audit dispute procedure will only delay the correction and in some instances cause your account to be turned over to collection. Not a very friendly outcome.

If you are having trouble filing a workers compensation audit dispute, have filed a dispute and it’s not going in a favorable direction or would like assistance with your work comp audit dispute, you should contact CoverEase at [email protected] for assistance.