If you’re new to the world of workers comp, you may have heard some war stories about the process and the outcome. Many new businesses dread their policy anniversary because they know what’s coming, and that it’s never turned out positive.
Workers comp is a fact of life for contractors, and the annual audit is a necessary evil that can be a good thing (lower premium), or a bad thing (premium increase). How you prepare in advance for your audit can make things go much easier. It may even result in a positive experience and take the dread out of the yearly meeting with your auditor
- Review the original policy to verify the initial premium and how it was determined. Check the class codes assigned, the rates that were calculated, and the payroll used.
- Have a list prepared of any discrepancies you may have found and be prepared to discuss them with your audit.
- Review all job descriptions used and make sure the proper NCCI classification code was assigned.
- Review your payroll records and make certain you have workers comp certificates for every contractor used.
- Review your website and make sure that it matches what your business is actually involved in. Many times websites can lead an auditor to suspect that you are not being truthful about services you provide because of the content on your website.
- Get your ducks in a row. Have your tax return and supporting schedules, payroll printout, and contractor certificates in the proper order and ready for review
During Your Audit Meeting
- Be helpful, professional, and friendly. Never enter into an audit meeting with a chip on your shoulder and unprepared
- If you, as the owner, are not available, authorize a support person to attend in your stead.
- Never invite and auditor to lunch, dinner, or for drinks. This may be considered an attempt to influence the audit outcome.
- Always meet with the audit after they have completed their report to go over the findings and to ask any questions.
After The Audit
If, after reviewing the final report of the audit, you do not agree with the findings, immediately prepare a written response to the findings and attach any support items that can substantiate your difference in the findings. Always ask that any adverse premium actions be suspended until the audit your challenge is resolved.
The Bottom Line
The workers’ comp audit is part of the life of a contractor, just like a tax audit. You must go through it and no amount of complaining will make it go away. Contractors should remember that many workers comp audits result in a reduced premium, which cannot happen until the audit is complete.
Not responding to and completing an audit request will prevent you from purchasing workers comp from any provider until the audit is resolved and any additional premium due is paid to the insurance carrier.
While You’re at It…
Since you’ll be digging through your files or scanning your computer for the docs you’ll need for your audit, that’s also a great time to check out your other insurance policies to make sure you have the right coverages and are getting the best rates.
Here is What We Recommend
General Liability: Contractors General Liability will be the foundation of protection for your business. The coverage will respond if you or your employees are found liable for bodily injury, property damage, or have a products/completed operations complaint. The coverage also covers defense costs for your business to respond to any lawsuits brought by a third party.
Workers’ Comp: Many states will require contractors to provide workers’ compensation coverage for their workers before they can begin a project. Accidents will happen at the job site that can result in an employee becoming injured and missing work. Your workers’ compensation coverage will provide financial assistance for medical expenses and lost wages.
Surety Bonds: It’s very likely that your state will require you to be licensed before you can begin operations. Most states and customers will require contractors to offer a license or surety bond before you are allowed to bid on a job or begin working.
Commercial Auto: Typically, most contractors will have light and heavy vehicles that require commercial auto insurance to make certain their vehicles can be repaired or replaced in the event of an accident, vandalism, or theft.
Tool Coverage: Also known as Inland Marine Insurance, this policy will provide for reimbursement for expenses to repair or replace tools and equipment. Your tools represent an important part of your livelihood, so we always encourage carpentry contractors to consider this valuable coverage.
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