Workers Compensation Audit Compliance

Written by Geoffrey Gordon | Fri, May 11, 2018 @ 04:19 PM

Your Workers Compensation insurance renews and you receive the letter informing you it's time for the prior term's audit.

Initial premium is based on estimated payroll. At the end of the year the company needs to determine actual payroll, including casual labor and uninsured subcontractors. If the actual is less than the estimate you get a refund. If the actual is greater than the estimate, you owe the difference.

When you purchase Workers Compensation insurance, part of the agreement is they may audit your payroll to be sure it's accurate. It may be a phone audit, a self-audit, or a physical on-site audit, (physical is required in Massachusetts at least every three years).

Should you refuse, it's rough: the carrier issues a high "estimate" with premium due. If you do not pay the estimated additional, your policy gets cancelled and the Department of Industrial Accidents may issue a Stop Work Order. You may also have an uninsured loss and then have to pay for medical expenses and lost wages out of pocket, plus be subject to a fine.

To prepare for the audit try to have:

Payroll records
Federal 941 Tax Returns (most recent four quarters)
1099 Tax Forms
Federal Tax Return including Profit & Loss section (1040 Schedule C, etc.)
General ledger or checkbook
Certificates of Insurance from subcontractors

You will receive a Final Audit Report from the carrier. If money is owed and you disagree you can file a dispute. The payment due date will be suspended until the dispute is settled.

Here's a chalkboard video that summarizes all this:

To discuss your Workers Compensation coverage with a Gordon Atlantic Insurance professional, call us toll free at 1-800-649-3252. Prefer to type versus talk? Use the form at the top left of this blog for a return phone call or email.

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