This is the third in a four part series where we cover everything an insurance broker needs to know about Workers’ Compensation.
For your clients, an audit can be one of the most challenging aspects of running a business. Many are unsure of the requirements they need to meet in order to successfully navigate an audit and thus rely on your expertise to get them through it. In this article, we’ll detail how your clients can set themselves up to successfully manage audits without too many bumps in the road.
Understanding a Workers’ Compensation Audit
Clients often become uneasy or stressed when it comes time for a workers’ compensation audit. You can help ease their angst by helping them understand the process and reminding them that it’s a common practice for all companies that have workers’ compensation policies.
Be sure to inform clients that the premium clients pay for a worker’s compensation policy is merely an estimate. At the end of the term, the insurance company will review the data and adjust the premium accordingly if appropriate. The business can expect one of three outcomes – the premium will increase, decrease, or remain the same. If the premium increases, the business will have to pay the difference. The business could expect a refund if the premium decreased.
In the example above, if the business added a tree trimmer halfway through the year, they would owe an additional premium, and if a tree trimmer quit during the year, the business would be entitled to a refund.
Your clients will appreciate it if you share the following tips with your clients to prepare them for their workers’ compensation audit:
- Use generally accepted accounting principles (GAAP) for recordkeeping
- Have IRS 941 forms available for the last four quarters
- Gather copies of 1099s the business issued over the year
- Payroll reports should list employee names, job duties, states they worked in, and the gross payroll
- Record overtime, rewards, severance, officer exemptions, tips, and payments for active military duty separately
- Include salaries, job duties, and payroll for officers and owners as well as how many weeks they worked and their ownership percentage
- Record contractors and subcontractors, their job duties, and payroll, and gather certificates of insurance
By keeping accurate records and having all the proper data and documents ready, the workers’ compensation audit will go as smoothly as possible.
Looking to learn more about how Workers’ Compensation experience modification rates? Read more in this article.