Understanding a Workers' Compensation Audit
What Is a Workers’ Compensation Audit?
A workers’ comp audit (also referred to as a workman’s comp audit) is an industry-standard practice that involves an annual review of company records at the request of an insurance agency. These audits ensure that your estimated premium reflects your business operations and any changes that may have occurred during the policy period. More specifically, it determines if the payroll and class codes quoted at inception accurately reflect the actual payroll and scope of work performed during the policy period.
Depending on your state, workers’ compensation audits can be legally required. Most states require insurance companies to audit a majority, if not all, of its policies. Keep in mind also that if your policy expires, your insurance carrier still has the ability to audit you.
To complete the worker’s comp audit you will need to gather the following documents:
- Payroll information (payroll summaries or journals)
- Last four quarters of Federal Form 941 and/or State Unemployment Wage Reports (If your quarterly tax reports don't line up with your policy term, you will need to provide your last four filed quarterly reports)
- Subcontractor information and/or certificates of insurance
Audits usually take two weeks to complete. If your payroll is too low, your audit may generate an additional premium. If your payroll is too high, your premium may be lowered. Audit reports also show changes to your classifications. If your business is misclassified, it may be necessary to add new job classification codes, which can change your premium. This is why accurate reporting is essential during the audit process.
