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Work Comp Audits: Paying the Correct Amount for Your Coverage

June 15, 2023 • MEM

Audits are an essential part of any workers compensation policy. The idea of an audit may be intimidating and negative to some. In other areas of life, audits are designed to catch mistakes – and come with penalties. However, work comp audits are designed differently. Receiving an audit isn’t a punishment; it’s reassurance. Audits ensure that policyholders are paying the right amount of premium – nothing more, nothing less.

On this episode of the WorkSAFE Podcast, we are joined by Tina Austin. She is a Premium Consultation Quality Specialist at Missouri Employers Mutual. Austin has been with the company for ten years and has more than 22 years of experience as an auditor. She trains professionals within MEM’s Premium Consultation Department. Her work ensures policyholders receive an accurate results from their audits.

First, we’ll explain what a work comp audit is. Then, we’ll answer a few frequently asked questions. Finally, we’ll share tips for a successful audit.

Listen to this episode of the WorkSAFE Podcast or read the show notes below.

Work comp audits 101

Work comp carriers perform audits to ensure a policyholder is paying the right premium amount. “All work comp policies are auditable,” Austin explained, “But that doesn’t mean we audit everybody every year.”

At the beginning of a policy period, the insured employer and their agent will meet. They will determine what payroll will look like for the policy term. This amount is an estimate. If the employer hires more employees or cuts back on staff, the final amount will change. An auditor compares the original payroll estimate and the actual amount at the end of the policy term. An employer may receive a credit or owe more premium, depending on the difference between the two.

Completing an audit

A business’s risk level, class code and complexity determine how an audit is completed. “There are many different ways that we might conduct an audit,” Austin shared. Policyholders provide information for the audit online or by mail. In this case, the auditor completes the audit and returns a summary called an Explanation of Audit. These methods involve little interaction with an auditor.

However, there are methods in which auditors are more involved. Some complete the process via phone or a video call. A policyholder can email or upload documents online beforehand. In other cases, auditors may visit a business and complete the process in person.

“We try to determine what’s going to be best for the customer,” Austin explained. For example, a builder who works with multiple subcontractors would likely receive one-on-one assistance from an auditor. “We would probably do that either virtually or in person so we have the ability to interact with our policyholder and ask the questions that are necessary to get things right.” In comparison, a small business with fewer employees could complete an online audit quickly and easily. Above all, auditors try to do what’s best for the policyholder. 

Do audits cost money?

Audits themselves don’t cost anything. “There’s no cost to having our auditors come out just to do an audit,” Austin said. However, completing an audit may reveal that there is more premium to pay. Estimated payroll and the final amount rarely, if ever, match up. “We don’t want you to pay one dime more than what you should,” she added. “So that process of doing an audit is checking up on what the policy should have cost and making sure that we, you know, balance those scales.”

Policyholders can receive credits during the audit process, too. For instance, employers may not hire all the employees they planned to in a policy period. Auditors may issue a credit in these cases. Working with an experienced auditor reveals credits for many things, such as severance, overtime and tips.


Subcontracting: The importance of Certificates of Insurance

If a business owner works with subcontractors, then it is essential to save any related documents. For instance, employers should keep all ledgers and checkbooks used for payment. Most importantly, they need to keep Certificates of Insurance.

A Certificate of Insurance (COI) is a form proving a subcontractor has their own work comp insurance. It lists details like:

  • Names of the insurer and policyholder
  • Policy time period
  • Type of insurance
  • Policy number
  • Effective dates

Uninsured subcontractors add to premium costs

These certificates protect employers from additional cost. If a subcontractor doesn’t have their own work comp coverage, their wages are included in the payroll of the employer who is retaining their services. This causes increases or decreases in total payroll, and directly affects premium costs. This increase can be significant if the subcontractor works in a high-risk industry, such as roofing or tree-cutting. When choosing a subcontractor, employers should always opt for one with a Certificate of Insurance first.

How long do audits take

The time an audit take depends on the risk and complexity of the business. Each one involves worksheets requiring detailed information. “I personally have done audits that have taken me less than an hour and I’ve done audits that have taken many days,” Austin shared. Completing this paperwork may take several weeks.

Policyholders receive an Explanation of Audit once the process is finished. However, they can ask for copies any time. “If you decide after the audit you want a copy of the worksheets, send us an email, pick up the phone and call us,” Austin explained. Employers must specify where and who to send the documents to, as they have sensitive information, such as payroll numbers. 

A typical audit process needs to be complete within sixty (60) days after the expiration of the policy period. Policyholders who are going to be audited receive notification from an auditor. From there, they get a list of required documents, and a time and date are decided. The sooner this process starts, the better. This allows time for a policyholder to collect any additional documents they may have forgotten or for necessary corrections to be made.

Disputing an audit

Any debits or credits a policyholder receives will go towards the next policy cycle. If a policyholder disagrees with anything within the audit, then they should reach out to their auditor. When both sides can’t come to an agreement, a dispute is opened. This is a more formal process that allows an audit manager to review the audit based on rules and statutes. However, Austin highlights that this process can take around 25 days. So if a policyholder has a concern or catches a mistake, it is in their best interest to express it sooner rather than later.

Tips for a successful audit

Audits allow employers to work with confidence. They are a partnership between a policyholder, their insurance carrier and their agent. Austin recommends the following tips for those preparing for an audit:

  • Keep good records. Auditors will send you a list of documents you need for an audit. For example, payroll records, tax forms, quarterly and annual statements are all needed for an audit.
  • Save subcontractor documentation. If you work with a subcontractor, save any related documents. For example, ledgers, checkbooks and Certificates of Insurance. Some states require them to be included in an audit.
  • Ask questions. Your auditor will provide you with their contact information. Reach out if you have questions about the process or your documents.
Date
June 15, 2023
Author
MEM
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