I wanted to provide some basic information to help my clients survive a work comp audit. The annual premium audit determines your company’s actual Work Comp insurance premium for the policy period, as opposed to the estimated premium originally used on the policy.

Before the premium auditor arrives, an employer should decide who will be the primary contact person is that will communicate with the auditor on behalf of your company. This contact person should be someone who is very familiar with the work done by all departments and all employees, as well as someone familiar with the payroll records the auditor will be reviewing. It’s also a good idea to contact your insurance agent and ask them to be present or at least be on conference call to help derail any witch hunt and assist in substantiating the position of your company. You wouldn’t go through an IRS audit without your CPA… 

Review the original policy to see how the initial estimated premium was calculated. Look at the classification codes, rates, and payrolls used to compute your initial premiums. The auditor will be starting from this as well, but will not necessarily be limited to using only the classifications listed on the policy. Also take a look at the information about your company that is readily available to the auditor, such as your company website and other online information. This is almost always used for underwriting and auditors to gather more information about how you conduct business.

Remember, it is likely the auditor will be looking at this information in advance of his or her visit to your offices. If there is any information there that could be misleading or is out of date regarding your operations or the nature of your work, not only should you be correcting it, you should also be prepared to clarify the changes with the auditor. You don’t want incorrect, out-of-date information to cause the auditor to make decisions about your insurance coverage cost basis.

It’s normally easier to address such issues early rather than after the audit is done, although it can be important to maintain a cordial and professional relationship with the auditor while the audit is being performed.

A premium auditor may well want to know information about the specific job duties performed by a certain department or by individual employees. For temp staffing this is typically the governing code of the client company which can easily be pulled from the www.ncci.com website. Unless the governing code does not contemplate the work your employees are doing then this will more than likely be the code used. This governing code may not be ideal but for the insurance company it describes all the exposures to loss that your employee will be around while working at the client location. It is usually to an employer’s advantage to provide accurate and detailed job duty information to the auditor, because if the auditor has to make assumptions about the exposures he or she more than likely will make worst-case assumptions and bump to the highest rated code that can unnecessarily increase your premium.

MAJOR DISCOUNT ITEMS FREQUENTLY MISSED:

  • DRUG FREE WORKPLACE CERTIFICATE
  • OWNER/OFFICERS EXCLUSION
  • OVERTIME PAY
  • OCIP EXCLUDED PAYROLL

HERE IS A LIST OF ITEMS YOU SHOULD HAVE READILY AVAILABLE:

  • Payroll Journal and Summary
  • Your Check Book. Try not to give them your check book unless it is the only way you keep records.
  • Federal Tax Reports – 941’s that cover the audit period
  • State Unemployment Reports and Individual Earnings Records
  • All Overtime Payments Shown Individuals
  •  Cash Disbursements showing:
    • Payments to Subcontractors
    • Materials
    • Casual Labor
  • Certificates of Insurance
    • For all Subcontractors
    • For all Independent Labor

For more information or a consultation please visit our website at www.CoverStaffing.com for contact information etc.