Without a doubt, workers’ compensation is one of the most complex types of insurance. But what’s the purpose of it? It is designed to protect both workers and their employers from extra expenses incurred from workplace injuries.
This coverage may include the cost of medical treatment and lost wages due to absence. Employers pay an insurance premium to those providers, and they then pay for medical expenses and other costs (based on the terms of the policy).
In today’s article, we’ll talk about how this compensation is audited. Let’s get started.
What Is a Workers’ Compensation Audit?
A workers compensation audit is basically an end-of-year review of the financial records that analyzes whether your company has paid the correct premiums for the coverage.
Depending on your business type or the auditor, it may be conducted over the phone or in person. During the audit, it is verified that the payroll quoted at the beginning of the policy reflects the actual payroll and scope of the work performed.
But what if the records don’t match? Then the price of insurance is adjusted for that specific policy year. The audit will also see if any workers you’ve hired also have their own coverage in place.
Different Scenarios from the Audit
This audit ensures that, as an employer, you paid the right amount for the coverage your workers have received. This audit can result in a range of scenarios.
For example, if payroll and actual risk exposure match the total estimate, there won’t be any cost difference. But if both are lower than the estimate, it means your premiums are less than what you paid initially. Your insurance provider will also owe you a refund in this case.
If both are higher than the estimate, you’ll need to pay the insurance provider the difference.
Who Should Be Trusted for the Audit?
You should only work with certified insurance auditors assigned by your insurance carrier. Similarly, independent certified public accountants (CPAs) can also carry this out.
You can also partner with independent, third-party audit firms as they have experts who know the complexities of the process. Checking the PAAS and NCCI certificates is also important to make sure those people are fully competent.
How You Can Get Prepared for the Audit
Carrying the audit may sound simple at first, but it becomes complex and daunting if you haven’t done your homework.
The auditor will first need your financial data to assess the records, so it’s important to have it organized and prepared. Also, put all your payroll records together so they can be easily accessed.
It’s also important to update the job descriptions because the auditor will get an idea of yoru company’s operations based on the jobs you’ve listed. They need to be more detailed and comprehensive, so the auditor can understand everything quickly.
You should also only provide what the auditor has asked for and don’t share things they don’t need. It will make the entire audit process quicker to finish.
Final Thoughts
Partnering with a reliable auditor means you will quickly find the loopholes and save costs wherever you can.
