In the realm of risk management, one crucial checkpoint that businesses encounter is the workers’ compensation audit. As an insurance agent and risk manager, mastering the intricacies of this audit process can be a strategic advantage in optimizing your Experience Modification Rate (EMR).
The Purpose of Workers’ Compensation Audits
A workers’ compensation audit is a systematic review of your workers’ compensation insurance policy to ensure that the premium accurately reflects the risks associated with your business. Misunderstandings and errors in these audits can lead either to overpayment, underpayment or potential legal complications. It’s essential for business owners and those responsible for managing these policies to understand the intricacies of the audit process, recognize common pitfalls, and appreciate the value of working with a helpful insurance agent that helps them navigate the audit process.
The Importance of Accurate Classification
Central to the workers’ compensation audit is the accurate classification of job duties and roles within your organization. Misclassifications can lead to inaccuracies in your premium calculation and subsequently impact your EMR. With over 700 classifications there are a lot to choose from and some of the wording on the classification descriptions can be misleading. The classifications in Florida are written by the National Council on Compensation Insurance (NCCI). These class codes are one of the most important parts of the workers compensation policy, because they are one of the two driving factors in premium. The other factor determining what a business pays is the amount of payroll for the employees in that business. If the employees are not classified properly, there is a chance that at the time of the audit, there will be a significant difference in rate between the classifications.
Strategies for a Successful Audit: Preparation is Key
Preparation is paramount when it comes to workers’ compensation audits. We’ll guide you through proactive strategies to ensure a smooth and successful audit process. From maintaining organized records to conducting internal audits in advance, businesses can take steps to position themselves for a favorable outcome that positively influences their EMR. Here are a few tips to be prepared for your Workers Comp audit:
- Keep your payroll and sales information up to date – the auditor will most likely want to review several financial records, including your federal tax return forms, W-2, and 1099 forms for all employees and contractors, and your company’s ledger or sales journal.
- Classify your employees correctly – to avoid a surprise bill at audit time it’s crucial to make sure your employees are assigned to the accurate class code. Especially the class codes that are higher in risk, as those have a higher rate.
- Assign a designated contact person – you want to have one point of contact with extensive knowledge of your business and processes to work with the auditor. Streamlining communication between all parties can make the entire process run more smoothly.
- Review your original Workers Comp policy and prepare any questions you may have – it’s important to understand how your initial premium was calculated. You’ll be more equipped to ask the right questions with this understanding
- Don’t be afraid to ask your insurance representative for help – your agent should be offering to help you prepare for the audit, and if you feel necessary should be willing to sit through it with you. If this isn’t your experience, you don’t have to settle for this from your current insurance agent.
- Maintain certificates of insurance for all your subcontractors – if you don’t have proof that your subcontractors have their own Workers Comp insurance, what you paid them will be added to your payroll figures for the respective class code. Don’t make this costly mistake.
Workers’ compensation audits are an event that takes place yearly. Your current representation should help you with preparing or disputing any audit findings that you think are incorrect. If you are currently working with an agent that has never offered you audit support, it’s time for us to chat!
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