Column: Steps to a stress-free workers’ compensation audit

BY JOHN COFINI

As a business owner, any time you hear the word “audit,” it”™s likely to push your stress level up a notch. Whether it”™s the IRS, an insurance auditor or some other agency poking through your records, an audit can be a nerve-racking and inconvenient experience for your company.

But when it comes time for a workers”™ compensation audit, there”™s no need to panic or dread the experience. With a little preparation and common sense, you can help the process go smoothly ”” and potentially save your business a lot of money.

When you”™re facing your next workers”™ compensation audit, here are seven steps to ensure a productive and less stressful experience:

1. Understand the “why” of audits. Your workers”™ compensation premiums are initially based on the insurance company”™s estimate of your exposures and payroll. At the end of the policy period, the company needs to conduct an audit to determine if the payroll and class codes quoted at policy inception accurately reflect the payroll and scope of work during the policy period. Yes, the auditor works for the insurance company and is primarily looking for premium-producing exposure. But many companies have overpaid by thousands of dollars due to classification and other errors, so an audit provides an opportunity to make sure the records are straight and you”™re getting a fair deal on your premiums.

2. Gather all records and paperwork requested by the auditor, and make sure everything is thorough, in order, and readily available. Records you may be asked to provide include:

Ӣ Employee records,

Ӣ Payroll records,

Ӣ Cash disbursements,

Ӣ Certificates of Insurance and

Ӣ Detailed description of your business operations.

3. Review prior audits. Your insurance company calculates your workers”™ compensation premiums based on the total number of hours worked by all employees and the categories the employees fall under, such as clerical worker or construction worker. Knowing how your employees have been categorized in the past can help you make sure they”™re categorized correctly in future audits.

4. Double-check the categorization for employees of subcontractors. This is one of those situations in which many small businesses have been overcharged by thousands of dollars in a single year because of an error. If your subcontractors carry their own workers”™ compensation insurance, you aren”™t responsible for paying premiums for them. If they don”™t, you could be responsible for the exposure under your policy.

5. Make sure overtime pay is noted individually for each employee. Your workers”™ compensation premiums aren”™t calculated at a full overtime pay rate. The formula for overtime insurance premiums varies from state to state, and in most states the auditor will break out overtime pay and discount it to straight time. This is another situation that can cost you unnecessarily if your records aren”™t accurate.

6. Provide the auditor only those records they request; don”™t volunteer more information than they ask for. This will help keep the audit focused and moving along, and avoid opening a can of worms that isn”™t relevant to the audit.

7. Ask the auditor for the worksheet when the audit session is done and have your insurance agent review it for accuracy. If you believe there are errors, you have the legal right to ask for a corrected audit.

Spending some time preparing for your next workers”™ compensation audit is a worthwhile investment. With workers”™ compensation being one of your biggest expenses, the last thing you need is to be paying more than necessary for premiums because of a small error.

John Cofini is executive vice president at Milbrandt Insurance in New Rochelle and the author of a weekly blog on business and homeowner insurance topics at milbrandt.com, where this column first appeared. He can be reached at johncofini@milbrandt.com or at 914-738-0100, ext. 27.