I was recently asked this question and thought it might be something other small employers may find interesting. Let’s talk about an individual owner operating as a Sole Proprietor, LLC or Corporation and who has no other employees and what they can expect during an audit.
Small business owners, ones who work by themselves and have no employees, secure workers compensation policies for a variety of reasons. Some are required to have coverage because of a specific requirement in a contract while others, because of the type of work hazards they may encounter, chose to be included under their states workers compensation statutes and buy a policy. Whatever the reason the policy provisions still apply, just like they do for a large multi state employer. And one of those provisions is that of the premium audit.
Here’s a short list of items you should expect during an audit:
- The audit may be conducted either as a phone audit, self audit or a combo. The phone audit is just what it sounds like. A representative from the insurance company sets up a time with the employer where they ask questions and complete the audit over the phone. A self-audit is mailed to the employer with instructions on how to complete it and where to send it when it’s finished.
- Items the auditor will want you to provide them may include copies of your payroll records; copy of your check book register; cash disbursement ledger; copies of 1099’s you’ve issued; descriptions of all payments to subcontractors; certificates of insurance from all 1099 payments made along with those made to subcontractors and independent contractors. They’ll also need you to provide copies of tax returns that can be used to verify the payroll information you provide them.
- You should be prepared to provide this type of information even if you have no employees and are a single business owner. It’s how they make sure they are getting the correct premium.
- Most states have some sort of set payroll they use as a rating payroll for included owners. If you are an included owner the original policy should have been set up based on this amount.
There you go! Just a few things a single owner with a workers comp policy should know about the audit process.
Be sure to visit our website for more helpful information about audits and workers compensation premium issues!
Hope this helps out! Thanks!