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What is Workers’ Compensation? 

Workers’ Compensation is insurance, required by law, to protect an employee so there are benefits in case they get hurt. Workers’ Compensation also provides something called Employer’s Liability to protect you as the employer in case the employee sues you because they got injured or hurt on the job.  

What’s a Workers’ Compensation audit? 

At the end of the policy term, usually a year, the carrier requests an audit where they can get your payroll information from the previous year and charge you accordingly. The insurance carrier performs an audit because they want to make sure that you are paying no more or no less than you should be paying for Workers’ Compensation.  

How can I prepare my business for an audit? 

You can prepare your business for an audit by making sure you have the payroll records and the appropriate 941 reports available for the carrier when requested. You can also ask the carrier to put you on what they call a “pay-go” system or a payroll or a pay-as-you-go system- where, as you file your payroll you can then go to the carrier and submit the information to the insurance company and they will charge you each payroll period instead of the monthly or quarterly that you might be paying now. 

How does the audit work? 

You’re usually going to get a letter or email or a call from the insurance company at the end of the policy year, usually 30 days after, and the letter they send says, the year is over we’d like to do an audit and they can enclose an audit form which you can easily complete. Send the last four quarter 941 reports with the payroll information they ask for, and that’s the audit. It can be done online also, many times the insurance company will send an auditor to your location and they will request the same thing. Payroll reports, federal 941’s, state 941’s. 

What items do I need to complete the audit? 

So, those three items, payroll records, 941 from the federal government, which is the quarterly report, and a quarterly report from the states where your employees work, those are the things that you need to complete the audit.

 What happens after the audit? 

After the audit is performed, the insurance company will send you an audit endorsement on your Workers’ Compensation policy. That audit endorsement will have the details of the audit. So you’re going to get in the mail either a letter saying WOOHOO we owe you money, or OH MY GOD you owe us money. Or you know what, the audit came out exactly as anticipated. So those are the three things that can happen. Nothing, you owe money, or they owe you money. 

How do I best prepare for an audit? 

So the best way to make sure that your audit is going to be good, meaning it’s right on or they owe you money, is if you do consistent hiring, notify the insurance company that you have new employees. All we need to know is the annual payroll that you’re paying the employees and what state they’re working in. So keeping your insurance company and your insurance agent informed as to your payroll will eliminate a lot of the issues companies have with worker’s compensation.