Workers’ compensation insurance coverage is an important part of business protection for any employer. But have you heard of a workers’ compensation policy audit? Here’s what you need to know about your workers’ comp policy audit.
why do you need workers’ compensation policies?
So, what is workers’ comp, and why do you need it as an employer?
Workers’ compensation is “insurance, paid by employers, providing wage replacement and medical benefits to employees who are injured during the course of working for the insured.”
Why do you need workers’ comp insurance? Well, there are a couple of reasons, First, investing in workers’ compensation helps businesses avoid hefty costs of an employee’s medical expenses and lost wages following a workplace injury or illness.
If an employer failed to have workers’ compensation (which is a criminal offense according to Section 3700.5 of the California Labor Code), they’d be responsible for all medical expenses out of pocket—which, depending on the illness or injury, could cause significant financial harm to their business.
Moreover, workers’ compensation wages and benefits are provided in exchange for removing the employee’s right to file a lawsuit against their employer.
what is a workers’ compensation audit?
A workers’ compensation audit is an annual review of records. These audits are requested by an insurance company to verify that your business has paid the correct premium for workers’ compensation insurance.
how does a workers’ compensation audit work?
Workers’ comp audits can be conducted:
- Over the phone
- By mail
How your audit is conducted depends on your auditor and business type.
Moreover, audits “determine if the payroll and class codes quoted at inception accurately reflect the actual payroll and scope of work performed during the policy period. Audits also ensure that sub-contractors had their own coverage in place.”
If records don’t match up, the price of the workers’ comp insurance will be adjusted for the policy year.
why do you need a workers’ compensation audit?
So, why do you need a workers’ compensation audit as a business owner?
As mentioned above, your initial workers’ comp premium estimate may not always match the actual payroll and scope of work for your business. Depending on a variety of factors throughout the year, this payroll figure might actually land below or above your estimate.
A workers’ comp audit is necessary—and is actually required by most state regulators—so that adjustments to the initial premium can be made if necessary.
how to prepare for an audit
Now you know what a workers’ compensation insurance audit is, how it works, and why you need one. Let’s briefly discuss how to prepare.
- Gather Your Records: Your auditor will, of course, need access to your financial data for the policy period (Think: General business information, payroll records, insurance records, cash disbursement records, etc.)
- Revise Job Descriptions: Workers’ comp premiums are determined by the risk that your employees face at work and on payroll. Revising employee job descriptions, and knowing what each role does thoroughly, is a great way to help prepare for an audit.
- Ask Questions: When the time comes for your audit, don’t be afraid to ask questions. Review all documents clearly and only provide the information requested, as to not create additional work for your auditor.
Interested in learning more? Read on for information about workers’ compensation in the hybrid workforce.