Unico Group, Inc.’s Twelve Dos and Don’ts of Preparing for a Premium Audit

0
Click here for all press, reviews & features about

While an IRS audit strikes fear in the hearts of business owners, a Workers’ Compensation premium audit is expected and viewed as routine. Yet, there is a very good chance that it can result in higher charges, particularly if you are not adequately prepared. Clerical errors, incorrect classifications, and miscalculations often lead to overcharges.  To avoid overcharges and unpleasant surprises, here are 12 dos and don’ts:

Dos

1. Be prepared. The auditor will need all the necessary financial records to conduct the audit and may ask for a tour of the facility.

2. Breakdown payroll records. While the types of breakdown may vary depending upon state statutes and industry, some common beneficial breakdowns are:

a. Job classification. Job classifications are a key factor in Workers’ Comp premiums. With the exception of construction and agriculture, the overall business operation, not individual duties, is assigned a governing classification.

b. Overtime. In most states, overtime pay can be reduced to straight time when determining the Workers’ Comp premium.

c. Severance pay. Employers need to show the auditor exactly what was paid in severance pay.

d. Executive officers. Covered executive officers, individual owners, and partners are subject to minimum and maximum payroll amounts and are required to have a class code assignment based on their duties.

e. Multi state exposures. State laws and carrier contracts can limit or sometimes prohibit Workers’ Compensation payments in a state outside of where the policy is written.

3. Understand separation of payroll opportunities and requirements. If it is allowed, divide an employee’s payroll over different class codes and
keep a detailed record of the specific hours worked for each Workers’ Comp class code. Without adequate records, payroll separation will not be applied.

4. Know what is excluded remuneration. To minimize your exposure, know the rules and exceptions and provide evidence or verification of the exclusion.

5. Be sure certificates of insurance are current and complete. Be sure the insurance matches the requirements of the contract and has not expired or been cancelled.

6. Assign a friendly and knowledgeable person to work with the auditor. A representative of the company familiar with both the operations of the company and the financial records should be present at every audit.

Don’ts

1. Be difficult or combative. Treat the auditor as a welcome guest.

2. Let the auditor leave without getting a copy of the audit work papers. This will allow you to review the audit with your agent and confirm that there are no errors BEFORE the audit is processed and billed (fixing it “after the fact” is more difficult).

3. Volunteer more information than asked. Only answer the questions asked and do not lead the auditor down a path that may prove detrimental.

4. Allow the auditor unescorted access to the premises. If the auditor wants to tour the facilities, be sure that the company representative is present.

5. Hire uninsured contractors. Auditors specifically look for uninsured subcontract labor when conducting the Workers’ Compensation audits.

6. Delay in disputing the bill. While it is best to try to resolve issues before the audit is processed and billed, it’s not always possible or there may be discrepancies between the worksheets and the audit. Be aware of time limits.

The best approach is to proactively develop a defensible position by preparing thoroughly and building an overcharge-proof audit package before the auditor arrives. As Certified WorkComp Advisors, we are trained to prepare employers for audits, spot errors and get them corrected.  For more information, give us a call today at 402-434-7200.


by Tom Champoux

Unico Group, Inc.

402-434-7200

www.UnicoGroup.com