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A workers’ comp audit is a process involving insurers that evaluate a business’s actual payroll and operations at the end of a policy period. They do this to determine the accurate workers’ compensation premium.
Workers’ comp premiums are based on projected data. This audit makes sure that businesses pay a fair premium related to their exposure to risk over the policy period.
Businesses should care about this process as it can show discrepancies that could lead to additional charges or refunds, which in turn can impact their financial planning. When you properly prepare for a workers’ comp audit, you can help your business avoid unexpected expenses, maintain compliance, and ensure you are not overpaying for coverage.
How Are Workers’ Comp Premiums Calculated?
Workers’ compensation premiums are based on three elements: employee classification rates, payroll, and the experience modification factor.
First, employees are given a class code based on the nature of their work and the related risk level. Jobs with higher risks will receive a higher rate.
Then, a company’s total payroll is brought into consideration. Premiums are calculated per $100 of payroll for each classification rate. The more employees and the higher the payroll, the higher the premium.
Thirdly, the experience modification factor, which compares a company’s actual loss history to expected losses in their industry is taken into account. A mod factor greater than 1.0 indicates higher-than-expected losses, increasing the premium, while a factor less than 1.0 suggests fewer losses, resulting in a discounted premium.
What Is the Premium Audit Process Like?
Typically, a premium audit process will occur at the end of a policy period, within 60 days of the policy’s expiration. Audits can be conducted remotely via mail or phone for smaller businesses or in person for larger organizations or those with more complex business operations.
The auditor may be from the insurance company or a third-party company. They will review payroll, tax information, and employee classification data.
If any discrepancies are found, your business could be required to pay additional costs or receive a refund.
How Can Businesses Prepare for a Premium Audit?
You can prepare for a premium audit by performing a few easy steps:
- Make sure payroll records, tax forms, and employee information are accurate and updated
- Document job duties and classification rates for each employee
- Ensure certificates of insurance for contractors and subcontractors are available
- Establish a person as a point of contact for the auditor
It’s important to ensure that all the information you share with the auditor is accurate. Providing the auditor with false information could lead to legal consequences.
What Should Businesses Do After the Audit?
After the audit, you should review the auditor’s report to understand their findings and any noted discrepancies. Make sure to look at the results with the original policy to ensure accuracy.
If the audit states that an additional premium is owed, you should begin making payment arrangements to avoid paying any penalties.
However, if the audit reveals that your business is owed a refund, you should verify the amount and follow up with the insurer. If there are disagreements with the auditor’s findings, you should file a formal complaint stating the reading and provide supporting documentation. It’s important to do so quickly as there are often deadlines for disputes.
How Can Biscayne Risk & Insurance Group Help With Workers’ Compensation Insurance?
Understanding workers’ comp audits does not have to be a complicated process. However, making sure you understand the process, prepare for it, and know how to handle things post-audit is paramount.
Biscayne Risk and Insurance Group specializes in providing workers’ compensation insurance solutions that meet your business’s needs. We have a team of experienced professionals who will guide you through minimizing risks and protecting your employees, along with your bottom line.
Please contact us to learn more about our insurance and risk management services. We look forward to working with you!