A premium audit is standard practice for insurance policyholders, and while the word ‘audit’ may sound frightening, it is nothing to be worried about! If you are expecting a premium audit soon, there’s plenty you can do to ensure you’re prepared for a smooth audit. Read on to find out more about workers’ compensation audit requirements and how best to make sure you’re ready.
What is a Premium Audit?
A premium audit is simply a policy review to confirm that the correct amount of insurance premium has been paid for the year. While premium audits may be conducted in various insurance coverage types, this article discusses premium audits related to workers’ compensation.
A workers’ compensation premium audit is a routine review designed to ensure your premium matches your actual business activity and policy coverages for the completed policy period. This standard process is required by many state and workers’ compensation bureaus to help ensure your policy is accurate and up to date.
When a business owner purchases a policy, the premium is typically based on the company’s payroll and employee classifications, which determine the risk associated with the employer’s business operations. Your workers’ comp premium is based on the information available when your policy is issued. Since payroll, job duties, and operations can change throughout the policy term, a premium audit helps ensure your premium is accurate.
The audit occurs at the end of the policy term so that any necessary adjustments to your premium can be made in order to ensure that it accurately reflects the exposure experienced during the policy period. In short, the purpose of a premium audit is to guarantee you’re paying the right price for your policy, which is a good thing!
Preparing for a Premium Audit: Year-Round Tips for Managing Your Policy and Staying Audit Ready
Once your policy expires at the end of the year, you’ll be asked to provide information to your insurance premium auditor to help determine your exposures for the policy term. Keeping accurate records throughout the year makes the audit process faster, easier, and more accurate.
The key phrase here is “throughout the year”—collecting information consistently will help avoid overwhelming yourself when it’s time to prepare for your audit. In fact, it’s best practice not to wait until the expiration date on your policy to let your carrier know about significant changes to your payroll, operations, ownership, employee duties, or use of subcontractors. Instead, addressing changes while your policy is still in force helps keep your policy up to date and makes your year-end premium audit even smoother.
When it comes to audit-time, it’s typical to assign someone in the accounting department to this role. However, the owner of the business will likely need to be involved in the process as well so it’s a good idea to make sure they are available at the same time.
Watch this short video for helpful tips on how to prepare for your premium audit.
Your Workers’ Compensation Insurance Audit Checklist
There are several documents you’ll be required to provide as part of your premium audit. Perhaps the most important among them are your payroll records. This should include your payroll summary, detailing total payroll by employee, classification code, all types of pay and deductions, and any overtime payroll records. It’s important to include detailed employee information, including the names, titles, job descriptions, state of employment, and compensation for all employees.
For more information about what payroll is included in a workers’ compensation audit, click here to view our workers’ comp audit checklist.
In addition to payroll and employee information, you should also prepare the following workers’ comp audit requirements:
- Federal (941) and State (SUI) quarterly tax returns that correspond to your policy period
- List of executive officers, owners, or partners (ownership percent, amount paid, job duties, and titles)
- List of employees that have been reported in the Clerical (8810) and/or Outside Sales (8742) classifications with a brief description of their duties
- Access to general ledger, profit & loss detail, and check register
- Certificates of Insurance and any additional documentation for any subcontract or temporary labor
Types of Premium Audits
Depending on state and workers’ compensation bureau requirements, the audit may be conducted in person, remotely via a secure website, by mail, or by phone. When conducting an audit online, you may be asked to provide your information via an online form. Learning how to fill out a workers’ comp audit form is simple, but it helps to make sure your information is organized, accurate, and easily available.
In-person audits are more common and are conducted with a visit from an auditor. Your auditor will come prepared to collect the information required to complete the audit. This information serves as a blueprint for the audit worksheets and helps ensure all exposures are evaluated with accuracy.
A copy of the worksheets will be sent to you after the Final Audit Invoice is issued. Review them carefully for errors, and if anything is amiss, contact the auditor right away. The Final Audit Invoice reconciles what you’ve paid based on your policy estimates or monthly reported payroll.
If you have further questions about your upcoming audit, contact ICW Group at premiumaudit@icwgroup.com.
