Florida Workers Compensation Audit Checklist

Workers’ compensation premiums are determined based on payroll; therefore, every year your insurance provider conducts an audit to assess and verify any estimated class code payroll that was quoted during that period. The results of the audit ultimately determine your final premium amount for policy.

Auditors will assess your company operations and everyone’s responsibilities to verify if risk estimates match actuals. Being prepared can help ease anxiety during an audit.

1. Class Codes
An insurance company conducts a workers’ comp audit in order to confirm that estimated payroll figures provided are accurate. Audits are an integral part of an insurance policy and failure to comply can result in fines or even the cancellation of coverage.

One of the most frequent errors committed by workers’ comp auditors is selecting inappropriate class codes. Class codes are risk ratings used by the National Council on Compensation Insurance (NCCI) that assign prices for different classes; those associated with higher risk jobs typically incur more costly premiums than safer jobs.

Make sure that during the audit process, you understand which classification codes are being applied to your business by asking your auditor to explain them and request a copy of their audit worksheet – this document contains all of the data gathered such as payroll details, classification codes and subcontractor payments.

2. Payroll
Insurance payroll audits typically follow the end of each policy period and require verification records and documents such as payroll data, workforce classification details and certificates of workers’ compensation insurance for contractors who do not possess their own coverage. A qualified payroll provider can assist with organizing this data for a quick yet accurate audit premium review process.

An auditor will investigate each employee’s duties and general operations of your business to confirm whether estimated risks correspond with actuals. One way of preparing for this is reviewing or writing job descriptions to accurately represent each employee’s responsibilities.

Erroneous payroll data can create havoc in premium calculations and lead to incorrect premium increases or, if payroll was lower than estimated, refunds. Your insurer will send a final audit statement which details whether credits were applied toward or returned as refunds.

3. Subcontractor Payments
Your clients could be overlooking some key information when filing payroll for workers’ compensation purposes, which could have an adverse effect on both their policy premium and how their work is valued.

Audits are used by insurance providers to test the accuracy of premium estimates given to customers when shopping for workers’ comp coverage, in order to make sure their policyholders aren’t paying either too much or too little for coverage.

An audit typically excludes some wages from calculations, including severance pay, tips and overtime pay that is one and one half or greater than regular hourly rates. Policyholders will also be asked for proof of workers’ compensation coverage for contractors and 1099 employees hired to perform work at client properties or businesses – usually by providing certificates of insurance; failure to do so could incur a premium noncompliance fee.

4. Job Descriptions
An accurate job description is key for a workers’ comp audit. An insurance company will use it to audit your payroll and correctly classify your business. A clear job description also helps auditors establish your governing class code – a key element in calculating insurance costs that takes into account risk and claims history.

Insurance companies want to make sure that your governing class code is correct, which could impact your premiums, so they conduct these audits to check its accuracy. They’ll compare it against what’s listed on your policy as well.

Workers’ comp audit penalties can range anywhere from 20%-50% of your premium, unless your policy stipulates otherwise. Failing to cooperate can lead to cancellation or non-renewal of current policy as well as legal action being taken against the individual(s). Insurance carriers may also conduct interim reviews within certain time frames and require completion within that period.