LET’S TALK WORKERS’ COMPENSATION AUDITS!
I know, I know, stop groaning!
I’ll start by saying that almost all businesses with employees must carry Workers’ Compensation Insurance. This policy provides employees with medical, wage, and other financial benefits, if they are injured or become ill on the job.
Every Workers Comp policy will have an audit at the end of the first policy term. An audit is based on the payroll of your employees and yourself if you’re not exempt. Exempting an owner of an LLC, or Corporation, requires a signed form that is provided by your insurance agent at the time your Workers' Comp policy is taken out.
Audits look to match up the payroll that was actually paid out against the payroll listed on the policy when it was issued.
- If your payroll was less than anticipated, you will receive a credit.
- If your payroll was more, you will receive a bill for the difference.
There is also what’s known as a “Ghost Policy.” This is when a business has no employees and workers comp is still required to obtain a job. In this case, most owners will exclude themselves; when the Audit occurs at the end of the policy term, there will be a credit.
I know how much business owners dislike completing audits, and I don't blame them. However, you must be aware that the ramifications of incomplete audits are much worse. Failure to comply with your Workers’ Comp audit can result in a bill for double your premium. This type of bill is called a “Non-Compliant Audit Charge.” This could also result in the insurance company canceling your policy midterm or non-renewing the policy at the end of its term.
Sometimes, an Audit Dispute can be requested, and this will provide more time to complete and submit the audit to the insurance company. However, getting a hold placed on the double billing is typically harder to obtain.
To ensure you are prepared for your audit, ask any subcontractor you hire to provide their Certificate of Insurance that should show their Workers’ Comp coverage. Always request this before they start work for the job. Keep a file of these certificates to have readily available at audit time. I’m repeating myself here, but make sure your subcontractors carry Workers’ Compensation insurance! If they don’t, you will be charged the Workers’ Compensation premium for the money you paid them for their services.
Workers’ Compensation Audits can be a frustrating process for many business owners. Knowing what to expect and being prepared will make the process easier and faster. That said, you can always call me with any questions.
Request a Worker's Compensation Quote Today!
Woodbury | 203-263-8881
Newtown | 203-426-2273