Workers’ compensation audit preparation tips

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How to prepare your workers’ compensation client for an final audit

It’s audit time for expiring workers’ compensation policies, whether it be a physical or telephone audit. Our goal is to prepare our mutual clients for the auditor’s visit or call. Here are workers’ compensation audit preparation tips for you to provide your clients on how to avoid paying additional premium.

Properly estimate annual payrolls

First, it’s important that policyholders carefully review their quotes to verify their payrolls are accurately estimated and classified. When their annual payrolls are properly estimated, they reflect a sufficient deposit collected at policy inception, reducing the chance of an unexpected large bill as a result of the final audit. Remind all clients to review their quotes – not just those whose policies have expired or are about to expire.

  • Overtime separation. Any overtime paid to employees needs to be separate. Summarize the overtime by class code and by employee when they are listed on payroll records.
  • Payroll division. Generally, payroll can be divided for each separate and distinct type of construction operation, provided the employer has maintained complete and accurate records supported by original time cards. When separate records of payroll are not maintained, all payrolls can be assigned to the highest rated classification applicable to the job. Division of payroll by means of percentages, averages, or estimates or any other source other than specific time records is not acceptable.
  • Two-tier wage thresholds. Use of dual wage construction class codes are subject to verification at the time of final audit. The hourly rate must be substantiated by original time cards: Any division by means of percentages, averages, estimates or any other source other than specific time cards will not be accepted. The time cards should have a start and end time daily. This applies to both hourly and piece work employees.
Related: How can you improve the claim process for your insurance clients?

Obtain subcontractor certificates of insurance and licenses

Subcontractors who have employees and all roofing contractors must have a certificate of workers’ compensation insurance and a valid contractor’s license. Without this documentation, these individuals or companies are considered employees for workers’ compensation purposes and may be included for premium calculation. Make sure the certificates of insurance include workers’ compensation coverage, and that their certificate covers the period when the subcontractor(s) worked for the policyholder. Look closely to see when the subcontractor’s certificate expires: More than one certificate may be needed if the first expired during the subcontractor’s work period.

Gather documentation

Your client’s workers’ compensation audit preparation should include assembling these items:

  • Copy of DE9s and 941s
  • Payroll summary or payroll journal for the exact policy period (by employee and class code) showing gross payroll and hours worked
  • List of employees with job duties
  • Compliant timecards for dual wage classifications
  • WC summary per employee per class code for the policy year
  • Listing of employees engaged in clerical and outside sales duties with a brief description of the work performed by each employee
  • Entity type, name, duties and list of officers (with breakdown of stock ownership). If multiple entities, include this information for each entity
  • Copy of collective bargaining agreement for union contractors
  • Breakdown of overtime records per employee
  • If engaged in prevailing wage jobs, detailed breakdown of basic rate, fringe benefits and overtime records with certified payroll
  • Profit and loss statements (may be requested)
  • General ledger or cash disbursements journal
  • List of subcontractors with contractor’s license and certificates of insurance
  • 1099s paid during the audit period

More helpful tips for workers’ compensation audit preparation

As policyholders prepare for their final audit keep these helpful hints in mind, provided by Not only will they save you time, but they will also cut down on potential errors made by the auditor.

  • Streamline the process. The auditor is on a very strict time schedule. Your clients should do everything they can to make sure the auditor’s job goes smoothly.
  • Be prepared. Have all the information the auditor requested organized and ready for use. Well-organized and accurate records make the audit process easier, allowing the auditor to quickly find what they need, cutting down on their questions and requests for back-up documents or clarification.
  • Answer basic questions. The business owner should be available to meet with the auditor to answer questions and review the audit. If the owner is not available, choose someone with a thorough knowledge of the business. Providing correct information is critical to an accurate audit.

Provide these guidelines for workers’ compensation audit preparation to your commercial clients to help them achieve an easy and successful final audit.

Related: Three Reasons Why Arrowhead is the Preferred Choice for CA Workers’ Compensation Coverage

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