How to Prepare for Your Workers' Compensation Audit

May 21, 2019

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Workers’ Compensation policies are written with premiums based upon your company’s payroll estimate at the beginning of each policy period. At the end of the policy period, your insurer will audit your payroll records to obtain your actual payroll numbers. 

This procedure is required for 2 reasons:
  1. To compare your actual payroll with your estimated payroll. Your premium is then adjusted accordingly.
  2. To submit your actual payroll, combine with your actual losses to the appropriate rating bureau (i.e. NCCI or your State Bureau). This allows the rating bureau to then calculate your experience modification rate (EMR).

It is extremely important that your company is properly prepared and complies with the audit. Failure to comply with an audit will adversely affect the promulgation of your EMR. The auditor will need financial data for the time period covered by the policy being audited.

Here is the type of information you may be asked to provide:

  • Accounting ledger.
  • Tax forms - Specifically, Form 941 and 944, Employers Federal Tax Return, and State Payroll Tax records (EDD – DE9/DE9).
  • Records of cash disbursements.
  • Payments for services provided by independent contractors. The auditor needs to verify that these workers are not your employees.
  • Payments for services provided by subcontractors.
  • Certificates of insurance for each subcontractor you hired
  • W-2 and 1099 forms.
  • Job description for each worker. Make sure the description accurately describes the workers’ duties.
  • Description of your business operations.
  • Payroll records for the term of the policy. The auditor needs to verify all sources of income provided to each worker (salary, bonuses, etc.).
  • Payroll limitations applicable to executive officers, partners, sole proprietors or other principals covered under the policy.
  • Your experience rating worksheet
  • Payroll records by classification, along with certificates of insurance for every OCIP or CCIP you were enrolled in during your policy term.

Overall, preparation is the key to ensure that the audit process is painless and that the resulting data is accurate.

If you have questions regarding the audit process or other information, please give our offices a call at 201-267-7500!

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Topics: Workers' Compensation

Written by The TSIB Team