Ensure Smooth Workers’ Compensation Premium Audits 

workers' compensation

Workers’ Compensation insurance provides coverage for employee on-the-job injuries and illnesses. A business pays an estimated premium at the beginning of the year that is based on a number of factors, including payroll; industry classification (different industries have varying levels of risk with regard to workplace injuries and illnesses); employee classification (a driver is at greater risk of an on-the-job injury than an office worker, for example); experience modification, which is based on actual losses/expected losses; and other factors.

Premium audits are conducted by the insurance companies to ensure that the employer’s payroll and employee classifications are correct and that there isn’t a premium overpayment or underpayment. A business undergoes operational changes or changes in workforce size during the year that would impact the payroll and, subsequently, the Workers’ Compensation premium. In addition, employees may mistakenly be misclassified which would also impact the premium.

Audits are typically performed once a year; although, the exact schedule may vary based on the insurance policy and the rules of the jurisdiction. The audit period is usually limited to a specified time frame, such as one policy year. It is typical for the audit to take place shortly after the policy year ends or when the policy is renewed.

During the audit, the insurance company representative or independent auditor will analyze the employer’s data, including payroll records, employee classifications, and other pertinent documentation.

It’s best to be well prepared for an audit. The California State Fund provides helpful information on getting audit-ready here. Some of the documents you will be asked to provide for the audit include the following:

  • Payroll Records: This includes records of wages paid to employees, hours worked, overtime pay, bonuses, commissions, and any other kinds of compensation. Individual employee information should ideally be included in these records, which should be grouped by pay period.
  • Timesheets or Timekeeping Systems: If your business uses timesheets or a timekeeping system, these records should be available to show how many hours employees worked. This can aid in the validation of payroll computations and the appropriate reporting of earnings.
  • Certificates of Insurance: Employers may be required to present insurance certificates for any subcontractors or independent contractors they worked with during the audit period. This is used to show that all workers are covered.
  • Tax Forms: These include W-2 and W-3 paperwork, 1096 and 1099 forms, and payroll tax filings.
  • Financial Statements: These include profit and loss statements or balance sheets to support an employer’s reported payroll data.
  • Business Records: Other relevant business records, such as general ledgers, sales records, contracts, invoices, or work orders, may be required, particularly if the company operates in various areas of work or engages in subcontracting.

About Western Truck Insurance Services

Western Truck Insurance Services is an insurance brokerage specializing in commercial truck insurance, including Workers’ Compensation. We know this stuff and want to make sure you do too. Our clients appreciate our dedication to finding competitive rates and offering unparalleled service beyond excellent insurance options. They also value how our state-of-the-art automation provides lightning-fast truck insurance quotes, customer service, insurance certificates, and coverage changes. Contact us today at (800) 937-8785 to learn more.