Small employers, those with workers compensation premiums below $5,000, are often presented with a self audit form to complete at the end of their policy period. The self audit form is a method an insurance company will typically use, in lieu of ordering a physical audit, to gather audit information from those employers with lower premium policies. Let’s learn about some of the problems associated with using self audit forms.
While very simple in construction, questions asked and information requested on a self audit form can lead to costly mistakes. Here’s some of the common information requested on one of these forms:
- Gross Payroll – All Employees – Do not include Owners, Partners, LLC Members or Corporate Officers
- Overtime Pay
- Describe Duties Performed By Each Employee
- List (Name), Show Gross Earnings and Describe Work Performed for All Owners, Partners, LLC Members or Corporate Officers
- Show All Work Contracted to Others by Name of Contractor, Description of Operations, Total Cost of Job or Labor Cost of Job.
- Provide Additional Information About Other Operations.
- Please Describe Your Business Operations.
- Signature of Person Completing Form
On the surface this information request appears to be reasonable, somewhat basic and shouldn’t cause a problem. However problems associated with self audits begin with the completion of the form by an employer and end with the interpretation of the information by an insurance company employee.
Specific items like employee payroll, overtime and hours worked are easily documented. They are what they are. But it’s those subjective items like, description of operations, type of work performed or duties performed that open the possibility for interpretation where problems can happen. Let’s take for example an appliance store, code 8044, who has employees that work on the sales floor and employees that perform service work, code 9519. Sales people sometimes assist with delivery but never go out on service calls. Code 8044 contemplates the delivery exposure. The owner indicates on the self audit form, under duties performed, each employee as “Sales/Service Technician.” The insurance company employee then assigns all employee payroll to the higher rated code of 9519. Depending on the payroll involved, this change could result in several thousands of dollars in additional premium due. All because of an incorrect interpretation of information provided by the employer on a self audit form.
Another problem area can be found when an employer is asked to describe their business operations. Most business owners will have a clear picture in their mind of the way their business looks to others. That description may include related services to their industry, services that they would one day like to provide, and services that because of competition they feel they should offer, whether or not they have ever performed such services. While this approach may be useful in attracting and securing new clients it may not properly represent the actual operations of the business. Information about business operations should be kept factual to existing operations and/or work processes and to the point. Incorrect interpretation of business operations can lead to incorrect reclassification and payroll reassignment at audit.
So remember these things when completing a workers compensation self audit form:
- Be factual with the information you provide.
- Be concise with the information you provide.
- Keep descriptions simple and to the point.
- Be sure to monitor your audit results.
Self audit forms fill a need. They help reduce insurance company policy servicing cost which in turn helps keep rates down for employers. Fill them out correctly and if you need help be sure you contact your insurance agent.
Hope this helps you out! Thanks!