A workers’ compensation audit is an annual review that evaluates all the business records at the request of an insurance company. It determines if the quoted payroll reflects the actual payroll and is in line with the type of work performed throughout the policy period.
The insurance provider uses audits to adjust the premium of your previous policy term based on the actual payroll to ensure that your business is paying for the necessary coverage. Certain things go into an audit process; below, we will look at what goes into these workers’ audits.
What Goes Into a Workers Comp Audit?
When preparing for the workers comp audit, it is necessary to plan carefully to provide the auditor with what they requested; there is no need to give them more than what they asked. It is good to note that the quicker the auditor finishes the auditing job, the better it is for you and your team.
You should have detailed and organized records which are easily accessible to the auditor. Some standard documents and records auditors ask for a smooth, fast, and easy auditing process.
- Payroll Records
Payroll records represent each employee’s compensation, including changes made to the settlements over the policy period. Some of the payroll records presented within the workers’ comp audit include payroll journals, summaries, and checkbooks if it’s the only means of keeping records.
Also, include the federal tax report, which covered the period, individual earnings records, and tax reports, including the subcontractors’ information and the overtime payroll records.
- Employee Records
The employee documents should include each employee’s job description and class code. The insurers primarily evaluate the classification codes to determine each employee’s level of risk based on their job duties.
Additionally, the employee records should include the number of hours, days, and weeks worked annually for each employee and the explanation of the employee’s job duties.
- Payments and Cash Disbursement Records
Payments records provide the auditors with details on the company’s cash flows, expenses, cash disbursements, and the information on the general ledger of the businesses. Additionally, during the workers’ comp audit, the payment and cash records showcase the overall payments to sub-contractors, the purchases of material, and the casual labor payments.
- Certificate of Insurance
Among the essential vital things that go into a workers comp audit is the certificate of insurance for all the sub-contractors and independent contractors hired during the policy period. However, if the sub-contractors lack worker’s compensation, they are included as part of your payroll.
- Details of the Business Operation
During a workers comp audit, the auditor will need to know in detail the description of the business operation to justify the classification codes used during the workers’ compensation. Additionally, the employers should provide a detailed process and schedule of the business operations.
Conclusion
It is necessary to plan and prepare the required documents and records requested by the auditor for the workers’ comp audit to avoid heavy penalties that can cost you financially. Also, keeping the records updated and in check is essential to avoid unnecessary fines.